Planters Product v. Fertiphil Corp.

G.R. No. 166006 March 14, 2008

REYES, R.T., J.

Lessons Applicable: Bet. private and public suit, easier to file public suit, Apply real party in interest
test for private suit and direct injury test for public suit, Validity test varies depending on which
inherent power

FACTS:

President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers which resulted in having Fertiphil paying P 10/bag sold to
the Fertilizer and Perticide Authority (FPA).
FPA remits its collection to Far East Bank and Trust Company who applies to the payment of
corporate debts of Planters Products Inc. (PPI)
After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return of
democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for collection
and damages against FPA and PPI with the RTC on the ground that LOI No. 1465 is unjust,
unreaonable oppressive, invalid and unlawful resulting to denial of due process of law.
FPA answered that it is a valid exercise of the police power of the state in ensuring the stability of
the fertilizing industry in the country and that Fertiphil did NOT sustain damages since the burden
imposed fell on the ultimate consumers.
RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is as such
because it is NOT for public purpose as PPI is a private corporation.

ISSUE:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in interest" or party who
stands to be benefited or injured by the judgment in the suit. In public suits, there is the right of the
ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal official
action subject to the direct injury test or where there must be personal and substantial interest in the
case such that he has sustained or will sustain direct injury as a result. Being a mere procedural
technicality, it has also been held that locus standi may be waived in the public interest such as cases
of transcendental importance or with far-reaching implications whether private or public suit, Fertiphil
has locus standi.

2. As a seller, it bore the ultimate burden of paying the levy which made its products more expensive
and harm its business. It is also of paramount public importance since it involves the constitutionality
of a tax law and use of taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the state but distinct and have
different tests for validity. Police power is the power of the state to enact the legislation that may
interfere with personal liberty on property in order to promote general welfare. While, the power of
taxation is the power to levy taxes as to be used for public purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is revenue generation. The lawful
subjects and lawful means tests are used to determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional
limitations.

In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and use the
funds generation for a private purpose. Public purpose does NOT only pertain to those purpose
which are traditionally viewed as essentially governmental function such as building roads and
delivery of basic services, but also includes those purposes designed to promote social justice. Thus,
public money may now be used for the relocation of illegal settlers, low-cost housing and urban or
agrarian reform.
WENCESLAO PASCUAL VS SECRETARY OF PUBLIC WORKS
FACTS: In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 for the
construction, reconstruction, repair, extension and improvement Pasig feeder road terminals.
Wenceslao Pascual, then governor of Rizal, assailed the validity of the law. He claimed that the
appropriation was actually going to be used for private use for the terminals sought to be improved
were part of the Antonio Subdivision. The said Subdivision is owned by Senator Jose Zulueta who
was a member of the same Senate that passed and approved the same RA. Pascual claimed that
Zulueta misrepresented in Congress the fact that he owns those terminals and that his property would
be unlawfully enriched at the expense of the taxpayers if the said RA would be upheld. Pascual then
prayed that the Secretary of Public Works and Communications be restrained from releasing funds
for such purpose. Zulueta, on the other hand, perhaps as an afterthought, donated the said property
to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD: No, the appropriation is void for being an appropriation for a private purpose. The subsequent
donation of the property to the government to make the property public does not cure the
constitutional defect. The fact that the law was passed when the said property was still a private
property cannot be ignored. In accordance with the rule that the taxing power must be exercised for
public purposes only, money raised by taxation can be expanded only for public purposes and not for
the advantage of private individuals. Inasmuch as the land on which the projected feeder roads were
to be constructed belonged then to Zulueta, the result is that said appropriation sought a private
purpose, and, hence, was null and void.

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as
the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail users into
a class for the purpose of the tax while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing
the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection
clause?
HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation
and to grant exemptions. This power has aptly been described as "of wide range and flexibility."
Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the
greatest freedom in classification. The reason for this is that traditionally, classification has been a
device for fitting tax programs to local needs and usages in order to achieve an equitable distribution
of the tax burden.

The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have never been thought of as raising revenues under
the equal protection clause.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN

GR No. L-31156, February 27, 1976

"Legislative power to create political corporations for purposes of local self-government carries with it
the power to confer on such local governmental agencies the power to tax.

FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare

Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as
an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27
denominated as "municipal production tax" of the Municipality of Tanauan, Leyte, null and void.
Ordinance 23 levies and collects from soft drinks producers and manufacturers a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27 levies and collects on soft
drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. Aside from the undue
delegation of authority, appellant contends that it allows double taxation, and that the subject
ordinances are void for they impose percentage or specific tax.

ISSUE: Are the contentions of the appellant tenable?

HELD: No. On the issue of undue delegation of taxing power, it is settled that the power of taxation is
an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. It is a power that is purely legislative
and which the central legislative body cannot delegate either to the executive or judicial department of
the government without infringing upon the theory of separation of powers. The exception, however,
lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers
may be delegated to local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to tax.

Also, there is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local taxation may not be exercised.
The reason is that the State has exclusively reserved the same for its own prerogative. Moreover,
double taxation, in general, is not forbidden by our fundamental law, so that double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the
State and the other by the city or municipality.

On the last issue raised, the ordinances do not partake of the nature of a percentage tax on sales,
or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and
not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely
for purposes of determining the tax rate on the products, but there is not set ratio between the volume
of sales and the amount of the tax.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

GR No. L-22814, August 28, 1968

"The classification made in the exercise of power to tax, to be valid, must be reasonable

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to the City
of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No. 110 which plaintiff
assails as null and void because it partakes of the nature of an import tax, amounts to double
taxation, highly unjust and discriminatory, excessive, oppressive and confiscatory, and constitutes an
invlaid delegation of the power to tax. The ordinance imposes taxes for every case of softdrinks,
liquors and other carbonated beverages, regardless of the volume of sales, shipped to the agents
and/or consignees by outside dealers or any person or company having its actual business outside
the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on
the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded
those made by said agents or consignees of producers or merchants established outside the City of
Butuan, would be exempt from the disputed tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid, must, however, be reasonable
and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which
make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally to all those who belong to
the same class.

LRTA v. CBAA
G.R. No. 127316. October 12, 2000
FACTS: LRTA is a GOCC engaged in public transportation. By virtue of its charter, it acquired real
properties. It entered into a contract of management with Metro wherein Metro undertook to manage,
operate, and maintain the LRT system owned by LRTA. The City Assessor assessed LRTA for realty
tax. LRTA paid the realty tax, except the assessment made on its carriageways and passenger
terminal stations including the land on which they were constructed on the ground that the same were
not real properties under the Real Property Tax Code, and that even if the same were real property, it
is still exempt from paying the realty tax because said properties are for public use.
ISSUE: WON a profit-oriented GOCC is exempt from paying realty tax under the Real Property Tax
Code.
HELD: No. A profit-oriented GOCC is not exempt from paying realty tax under the Real Property Tax
Code. Though the creation of the LRTA was impelled by public service -- to provide mass
transportation to alleviate the traffic and transportation situation in Metro Manila -- its operation
undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate
powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private
corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax,
notwithstanding its claim of being a government-owned or controlled corporation. True, petitioner's
carriageways and terminal stations are anchored, at certain points, on public roads. However, it must
be emphasized that these structures do not form part of such roads, since the former have been
constructed over the latter in such away that the flow of vehicular traffic would not be impeded. These
carriageways and terminal stations serve a function different from that of the public roads. The former
are part and parcel of the light rail transit (LRT) system which, unlike the latter, are not open to use by
the general public. The carriageways are accessible only to the LRT trains, while the terminal stations
have been built for the convenience of LRTA itself and its customers who pay the required fare.
Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay
the required fare. It is thus apparent that petitioner does not exist solely for public service, and that
the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a
public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations
in its public utility business and earns money there from. Other grounds: The charter of LRTA does
not provide for any real estate tax exemption. Executive Order No. 603, the charter of petitioner, does
not provide for any real estate tax exemption in its favor. Its exemption is limited to direct and indirect
taxes, duties or fees in connection with the importation of equipment not locally available, as the
following provision shows:2. The beneficial use of the properties have been transferred to a taxable
entity. Even granting that the national government indeed owns the carriageways and terminal
stations, the exemption would not apply because their beneficial use has been granted to petitioner, a
taxable entity.

Mactan Cebu (MCIAA) vs. Marcos

GR 120082 September 11, 1996 261 SCRA 667

FACTS: Mactan Cebu International Airport Authority (MCIAA) was created to principally undertake to
economical, efficient and effective control, management and supervision of
the Mactan International Airport and such other airports as may be established in
the province of Cebu Section 14 of its charter excempts the Authority from payment of realty taxes
but in 1994, the City Treasurer demanded payment for realty taxes on several parcels of land
belonging to the other. MCIAA filed a petition in RTC contending that, by nature of its powers and
functions, it has the same footing of an agency or instrumentality of the national government. The
RTC dismissed the petition based on Section 193 & 234 of the local Government Code or R.A. 7160.
Thus this petition.

ISSUE: Whether or not the MCIAA is excempted from realty taxes?

RULING: With the repealing clause of RA 7160 the tax exemption provided. All general and special
in the charter of the MCIAA has been expressly repeated. It state laws, acts, City Charters, decrees,
executive orders, proclamations and administrative regulations, or part of parts thereof which are
inconsistent with any of the provisions of the Code are hereby repeated or modified accordingly.
Therefore the SC affirmed the decision and order of the RTC and herein petitioner has to pay the
assessed realty tax of its properties effective January 1, 1992 up to the present.
 MIAA VS PARANAQUE
FACTS: The Officers of Paranaque City sent notices to MIAA due to real estate tax delinquency.
MIAA then settled some of the amount.

Now when MIAA failed to settle the entire amount, the officers of Paranaque city threatened to levy
and subject to auction the land and buildings of MIAA, which they did.

MIAA then sought for a Temporary Restraining Order (TRO) from the CA but failed to do so within
the 60 days reglementary period, so the petition was dismissed.

MIAA then sought for the TRO with the Supreme Court a day before the public auction, MIAA was
granted with the TRO but unfortunately the TRO was received by the Paranaque City officers 3
hours after the public auction. See what I told you? See how original this case was? I mean what
on earth was MIAA doing?? Talk about all the right moves.

MIAA claims that although the charter provides that the title of the land and building are with MIAA
still the ownership is with the Republic of the Philippines. MIAA also contends that it is an
instrumentality of the government and as such exempted from real estate tax. So in other
words, MIAA's bone of contention and defense lie solely on the principle that the land and buildings of
MIAA are of public dominion and therefore cannot be subjected to levy and auction sale.

Let's see if it will hold.

On the other hand, the officers of Paranaque City claim that MIAA is a GOCC (government owned
and controlled corporation) therefore not exempted to real estate tax.

ISSUE: Whether or not:

1. MIAA is an instrumentality of the government and not a government owned and controlled
corporation and as such exempted from tax.

2. The land and buildings of MIAA are part of the public dominion and thus cannot be the subject
of levy and auction sale.

RULING:

1. Under the Local government code, (GOCCs) government owned and controlled
corporation are NOT exempted from real estate tax.

MIAA is not a government owned and controlled corporation, for to become one MIAA should
either be a stock or non stock corporation. MIAA is not a stock corporation for its capital is not divided
into shares. It is not a non stock corporation since it has no members.

MIAA is an instrumentality of the government vested with corporate powers and government
functions. Under the civil code, property may either be under public dominion or private
ownership. Those under public dominion are owned by the State and are utilized for public
use, public service and for the development of national wealth. When properties under public
dominion cease to be for public use and service, they form part of the patrimonial property of
the State.

2. The court held that the land and buildings of MIAA are part of the public dominion. Since the
airport is devoted for public use, for the domestic and international travel and transportation. Even if
MIAA charge fees, this is for support of its operation and for regulation and does not change the
character of the land and buildings of MIAA as part of the public dominion.

As part of the public dominion the land and buildings of MIAA are outside the commerce of man. To
subject them to levy and public auction is contrary to public policy. Unless the President issues
a proclamation withdrawing the airport land and buildings from public use, these properties remain to
be of public dominion and are inalienable. As long as the land and buildings are for public use
the ownership is with the Republic of the Philippines

MIAA wins this case.

MIAA VS. CITY OF PASAY

April 02, 2009
G.R. No. 163072

FACTS: Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy
Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), 3otherwise
known as the Revised Charter of the Manila International Airport Authority, issued by then President
Ferdinand E. Marcos. The NAIA Complex is located along the border between Pasay City and
Paraaque City. MIAA received Final Notices of Real Property Tax Delinquency from the City of
Pasay for the taxable years 1992 to 2001. The Court of Appeals upheld the power of the City of
Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for
reconsideration, which the Court of Appeals denied.

ISSUE: The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt
from real property tax.

RULING: The Supreme Court held that the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public dominion. Properties of public dominion are
owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth.

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
 CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. vs. EXECUTIVE
SECRETARY- Minimum Corporate Income Tax

FACTS: CREBA assails the imposition of the minimum corporate income tax (MCIT) as being
violative of the due process clause as it levies income tax even if there is no realized gain. They also
question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets
stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of
gross selling price or fair market value as basis for the CWT and the collection of tax on a per
transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on
ordinary real properties; (3) the government collects income tax even when the net income has not
yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other
enterprises, more particularly those in the manufacturing sector.

ISSUE: Are the impositions of the MCIT on domestic corporations and CWT on income from sales
of real properties classified as ordinary assets unconstitutional?

HELD: NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is
arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross sales. Besides, there are sufficient safeguards that exist
for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward
of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend
the imposition of MCIT in justifiable instances.

The regulations on CWT did not shift the tax base of a real estate business income tax from net
income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax
payments and they are thus just installments on the annual tax which may be due at the end of the
taxable year. As such the tax base for the sale of real property classified as ordinary assets remains
to be the net taxable income and the use of the GSP or FMV is because these are the only factors
reasonably known to the buyer in connection with the performance of the duties as a withholding
agent.

Neither is there violation of equal protection even if the CWT is levied only on the real industry as the
real estate industry is, by itself, a class on its own and can be validly treated different from other
businesses.

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double Taxation

FACTS: Respondent paid the local business tax only as a manufacturers as it was expressly
exempted from the business tax under a different section and which applied to businesses subject to
excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the
ordinance by deleting the provision exempting businesses under the latter section if they have
already paid taxes under a different section in the ordinance. This amending ordinance was later
declared by the Supreme Court null and void. Respondent then filed a protest on the ground of
double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on
April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File
Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition.
A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to
file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued
a resolution dismissing the case for failure to timely file the Petition.

ISSUES:

(1) Has Petitioners the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD:

(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007,
Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the
CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-
day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30
May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of
petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30
May 2007, they were able to comply with the period for filing such a petition.
(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections
14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter the
privilege of doing business in the City of Manila; (2) for the same purpose to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same taxing
authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial
jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the
same kind or character a local business tax imposed on gross sales or receipts of the business.

Villegas vs. Hui Chiong Tsai Pao Ho

FACTS: This case involves an ordinance prohibiting aliens from being employed or engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and
paying the permit fee of P50.00. Private respondent Hiu Chiong Tsai Pao Ho who was employed in
Manila, filed a petition to stop the enforcement of such ordinance as well as to declare the same null
and void. Trial court rendered judgment in favor of the petitioner, hence this case.
ISSUE: WON said Ordinance violates due process of law and equal protection rule of the
Constitution.
HELD: Yes. The Ordinance The ordinance in question violates the due process of law and equal
protection rule of the Constitution. Requiring a person before he can be employed to get a permit
from the City Mayor who may withhold or refuse it at his will is tantamount to denying him the basic
right of the people in the Philippines to engage in a means of livelihood. While it is true that the
Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he
cannot be deprived of life without due process of law. This guarantee includes the means of
livelihood. The shelter of protection under the due process and equal protection clause is given to all
persons, both aliens and citizens.
 CITY OF BAGUIO vs. DE LEON
GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the other is imposed by the
city."

FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby
amending the city charter empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was assessed for P50 annual
fee it being shown that he was engaged in property rental and deriving income therefrom. The latter
assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority which
expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and
violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statury
authority for the enactment thereof.
Second, an argument against double taxation may not be invoked where one tax is imposed by the
state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results.
And third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof.

Sison vs Ancheta (1984)

Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income as a professional,
that it amounts to class legislation, and that it transgresses against the equal protection and due
process clauses of the Constitution as well as the rule requiring uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.

Held: There is a need for proof of such persuasive character as would lead to a conclusion that there
was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation. Where the
differentitation conforms to the practical dictates of justice and equity, similar to the standards of
equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform.
Taxpayers may be classified into different categories, such as recipients of compensation income as
against professionals. Recipients of compensation income are not entitled to make deductions for
income tax purposes as there is no practically no overhead expense, while professionals and
businessmen have no uniform costs or expenses necessaryh to produce their income. There is ample
justification to adopt the gross system of income taxation to compensation income, while continuing
the system of net income taxation as regards professional and business income.
 CIR vs. CA
GR No. 119322 June 4, 1996

"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must
first be proved."

FACTS: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency
income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for
reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice
against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective
corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the
correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to
fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the
declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by
the respondents to the BIR. Such documents when requested by the court were not however
presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by
the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution
be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary
mandatory injuction issued by the trial court.

ISSUE: Whose contention is correct?

HELD: In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that
the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal
prosecution, and that while a precise computation and assessment is required for a civil action to
collect tax deficiencies, the Tax Code does not require such computation and assessment prior to
criminal prosecution.

Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary
prior to prosecution is pointedly and deliberately qualified by the Court with following statement
quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a
fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal
prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to
evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to
declare in his income tax return "his income derived from banana sapplings." In the mind of the trial
court and the Court of Appeals, Fortune's situation is quite apart factually since the registered
wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price,
therefore, not fraudulent and unless and until the BIR has made a final determination of what is
supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution. Herein lies a whale of difference between Ungab and the case at bar.

COMMISSIONER OF INTERNAL REVENUE v. MICHEL J. LHUILLIER PAWNSHOP, INC. G.R. No.

150947. July 15, 2003

FACTS: On 1991, the CIR issued Revenue Memorandum Order (RMO) No. 15-91, which was
clarified by RMO No. 43-91 imposing a 5% lending investors tax on pawnshops. It held that the
principal activity of pawnshops is lending money at interest and incidentally accepting personal
property as security for the loan. Since pawnshops are considered as lending investors
effective, they also become subject to documentary stamp taxes.
On 1997, the Bureau of Internal Revenue (BIR) issued an Assessment Notice against Lhuillier
demanding payment of deficiency percentage.
Lhuillier filed an administrative protest with the Office of the Revenue Regional Director contending
that neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross
income of pawnshops; that pawnshops are different from lending investors, which are subject to the
5% percentage tax under the specific provision of the Tax Code; that RMO No. 15-91 is not
implementing any provision of the Internal Revenue laws but is a new and additional tax measure on
pawnshops, which only Congress could enact, and that it impliedly amends the Tax Code, and that it
is a class legislation as it singles out pawnshops.
On 1998, the BIR issued Warrant of Distraint and/or Levy against Lhuilliers property for the
enforcement and payment of the assessed percentage tax.
When Lhuiller's protest was not acted upon, they elevated it to the CIR which was also not acted
upon. Lhuiller filed a Notice and Memo on Appeal with the CTA.
On 2000, the CTA held the the RMOs were void and that the Assessment Notice should be
cancelled.
The CIR filed a motion for review with the CA which only affirmed the CTA's decision thus this case in
bar.
ISSUE: Whether pawnshops included in the term lending investors for the purpose of imposing the
5% percentage tax under the NIRC.
RULING: No.
The held that even though the RMOs No were issued in accordance with the power of the CIR, they
cannot issue administrative rulings or circulars not consistent with the law sought to be applied. It
should remain consistent with the law they intend to carry out. Only Congress can repeal or amend
the law.
In the NIRC, the term lending investor includes all persons who make a practice of lending money for
themselves or others at interest. A pawnshop, on the other hand, is defined under Section 3 of P.D.
No. 114 as a person or entity engaged in the business of lending money on personal property
delivered as security for loans.
While it is true that pawnshops are engaged in the business of lending money, they are not
considered lending investors for the purpose of imposing the 5% percentage taxes citing the following
reasons:
1. Pawnshops and lending investors were subjected to different tax treatments as per the NIRC.
2. Congress never intended pawnshops to be treated in the same way as lending investors.
3. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers
in securities and lending investors only. There is no mention of pawnshops.

4. The BIR had ruled several times prior to the issuance of the RMOs that pawnshops were not
subject to the 5% percentage tax imposed by Section 116 of the NIRC of 1977. As Section 116 of the
NIRC of 1977 was practically lifted from Section 175 of the NIRC of 1986, and there being no change
in the law, the interpretation thereof should not have been altered.
ABAKADA GURO PARTY LIST VS PURISIMA
G.R. No. 166715; August 14, 2008
Facts: Petitioners seeks to prevent respondents from implementing and enforcing Republic Act (RA)
9335. R.A. 9335 was enacted to optimize the revenue-generation capability and collection of the
Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends to encourage
BIR and BOC officials and employees to exceed their revenue targets by providing a system of
rewards and sanctions through the creation of a Rewards and Incentives Fund (Fund) and a Revenue
Performance Evaluation Board (Board). It covers all officials and employees of the BIR and the BOC
with at least six months of service, regardless of employment status.
Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA
9335, a tax reform legislation. They contend that, by establishing a system of rewards and incentives,
the law transforms the officials and employees of the BIR and the BOC into mercenaries and bounty
hunters as they will do their best only in consideration of such rewards. Thus, the system of rewards
and incentives invites corruption and undermines the constitutionally mandated duty of these officials
and employees to serve the people with utmost responsibility, integrity, loyalty and efficiency.
Petitioners also claim that limiting the scope of the system of rewards and incentives only to officials
and employees of the BIR and the BOC violates the constitutional guarantee of equal protection.
There is no valid basis for classification or distinction as to why such a system should not apply to
officials and employees of all other government agencies.
In addition, petitioners assert that the law unduly delegates the power to fix revenue targets to the
President as it lacks a sufficient standard on that matter. While Section 7(b) and (c) of RA 9335
provides that BIR and BOC officials may be dismissed from the service if their revenue collections fall
short of the target by at least 7.5%, the law does not, however, fix the revenue targets to be achieved.
Instead, the fixing of revenue targets has been delegated to the President without sufficient
standards. It will therefore be easy for the President to fix an unrealistic and unattainable target in
order to dismiss BIR or BOC personnel.
Finally, petitioners assail the creation of a congressional oversight committee on the ground that it
violates the doctrine of separation of powers. While the legislative function is deemed accomplished
and completed upon the enactment and approval of the law, the creation of the congressional
oversight committee permits legislative participation in the implementation and enforcement of the
law.
Issues:

1. Whether or not the scope of the system of rewards and incentives limitation to officials and
employees of the BIR and the BOC violates the constitutional guarantee of equal protection.
2. Whether or not there was an unduly delegation of power to fix revenue targets to the President.
3. Whether or not the doctrine of separation of powers has been violated in the creation of a
congressional oversight committee.

Discussions:

1. The Court referred to the ruling of Victoriano v. Elizalde Rope Workers Union, which states that
the guaranty of equal protection of the laws is not a guaranty of equality in the application of the
laws upon all citizens of the State.
The equal protection of the laws clause of the Constitution allows classification. Classification in law,
as in the other departments of knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars. A law is not invalid because of
simple inequality. The very idea of classification is that of inequality, so that it goes without saying that
the mere fact of inequality in no manner determines the matter of constitutionality.
The Court has held that the standard is satisfied if the classification or distinction is based on a
reasonable foundation or rational basis and is not palpably arbitrary.

2. To determine the validity of delegation of legislative power, it needs the following: (1) the
completeness test and (2) the sufficient standard test. A law is complete when it sets forth therein
the policy to be executed, carried out or implemented by the delegate. It lays down a sufficient
standard when it provides adequate guidelines or limitations in the law to map out the boundaries
of the delegates authority and prevent the delegation from running riot. To be sufficient, the
standard must specify the limits of the delegates authority, announce the legislative policy and
identify the conditions under which it is to be implemented.
3. Based from the ruling under Macalintal v. Commission on Elections, it is clear that congressional
oversight is not unconstitutional per se, meaning, it neither necessarily constitutes an
encroachment on the executive power to implement laws nor undermines the constitutional
separation of powers. Rather, it is integral to the checks and balances inherent in a democratic
system of government. It may in fact even enhance the separation of powers as it prevents the
over-accumulation of power in the executive branch.

Rulings:

1. The equal protection clause recognizes a valid classification, that is, a classification that has a
reasonable foundation or rational basis and not arbitrary.22 With respect to RA 9335, its expressed
public policy is the optimization of the revenue-generation capability and collection of the BIR and
the BOC.23 Since the subject of the law is the revenue- generation capability and collection of the
BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to
the said agencies. Moreover, the law concerns only the BIR and the BOC because they have the
common distinct primary function of generating revenues for the national government through the
collection of taxes, customs duties, fees and charges.

Both the BIR and the BOC principally perform the special function of being the instrumentalities
through which the State exercises one of its great inherent functions taxation. Indubitably, such
substantial distinction is germane and intimately related to the purpose of the law. Hence, the
classification and treatment accorded to the BIR and the BOC under R.A. 9335 fully satisfy the
demands of equal protection.

2. R.A. 9335 adequately states the policy and standards to guide the President in fixing revenue
targets and the implementing agencies in carrying out the provisions of the law under Sec 2 and 4
of the said Act. Moreover, the Court has recognized the following as sufficient standards: public
interest, justice and equity, public convenience and welfare and simplicity, economy and
welfare.33 In this case, the declared policy of optimization of the revenue-generation capability
and collection of the BIR and the BOC is infused with public interest.
3. The court declined jurisdiction on this case. The Joint Congressional Oversight Committee in RA
9335 was created for the purpose of approving the implementing rules and regulations (IRR)
formulated by the DOF, DBM, NEDA, BIR, BOC and CSC. On May 22, 2006, it approved the said
IRR. From then on, it became functus officio and ceased to exist. Hence, the issue of its alleged
encroachment on the executive function of implementing and enforcing the law may be
considered moot and academic.
 Association of Customs Brokers vs Manila
GRN L-4376 May 22, 1953

FACTS: The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax
that is within the power of the City under its revised charter. The ordinance was passed by the
Municipal Board under the authority conferred by section 18 of RA 409

ISSUE: Whether or not the ordinance infringes on the uniformity of taxes as ordained by the
Constitution.

RULING: The Ordinance exacts the tax upon all motor vehicles operating within Manila and does not
distinguish between a motor vehicle registered in the City and one registered in another place nor
does it distinguish private of vehicle for hire. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in Manila. There is no pretense that the
Ordinance equally applies to vehicles who come to Manila for a temporary purpose.
 Shell Corporation v. Vano (As Municipal Treasurer)
GR L-6093, 94 Phil 387, February 24, 1954

Facts: The Municipal Council of Cordova, Cebu adopted Ordinance 10 which imposes an annual tax
on occupation or the exercise of the privilege of installation manager and Ordinance 11 imposing an
annual tax on tin can factories having a maximum output capacity of 30,000 tin cans. Shell, a foreign
corporation, disputed the ordinances and contended that: first, installation manager is a designation
made by the company and such designation cannot be deemed to be a calling as defined in
Sec 178 of NIRC and that the installation manager employed by Shell is a salaried employee which
may not be taxed by the municipal council under the provisions of NIRC; second, the ordinance is
discriminatory and hostile because there is no other person in the locality who exercises such
designation or calling; and third, the imposition of tax on tin can factories having a 30,000 maximum
output capacity is unlawful because it is a percentage tax and falls under the exceptions provided in
the Tax Code.

Issue: W/N an installation manager, although a salaried employee, is liable for occupation tax

Ruling: Yes. Even if the installation manager is a salaried employee of the corporation, still it is an
occupation. Further, one occupation or line of business does not become exempt by being
conducted with some other occupation or business for which such tax has been paid. The occupation
tax must be paid by each individual engaged in a calling subject to it.

Issue 2: W/N the ordinance is unconstitutional because it is hostile and discriminatory

Ruling: No. The fact that there is no other person in the locality who exercises such a designation
or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be
applicable to any person or firm who exercises such calling or occupation named or designated as
installation manager.

Issue 3: W/N the annual tax imposition on tin can factories having an annual output capacity of
30,000 is valid

Ruling: Yes. It is not a percentage tax because the maximum annual output capacity is not a
percentage. It is not a share or a tax based on the amount of the proceeds realized out of the sale of
the tin cans manufactured therein but on the business of manufacturing tin cans having a maximum
annual output capacity of 30,000 tin cans.

Issue 4: W/N the Municipal Treasurer should have been impleaded in this case

Ruling: No. In an action for refund of municipal taxes claimed to have been paid and collected under
an illegal ordinance, it is not the municipal treasuer who is the real party-in-interest but the
municipality concerned that is empowered to sue and be sued.

Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan

GR No 81311 June 30, 1988
FACTS: EO 372 was issued by the President of the Philippines which amended the Revenue Code,
adopting the value-added tax (VAT) effective January 1, 1988. Four petitions assailed the validity of
the VAT Law from being beyond the President to enact; for being oppressive, discriminatory,
regressive and violative of the due process and equal protection clauses, among others, of the
Constitution. The Integrated Customs Brokers Association particularly contend that it unduly
discriminate against customs brokers (Section 103r) as the amended provision of the Tax Code
provides that service performed in the exercise of profession or calling (except custom brokers)
subject to occupational tax under the Local Tax Code and professional services performed by
registered general professional partnerships are exempt from VAT.

ISSUE: Whether the E-VAT law is void for being discriminatory against customs brokers

RULING: No. The phrase except custom brokers is not meant to discriminate against custom
brokers but to avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended.
The distinction of the customs brokers from the other professionals who are subject to occupation tax
under the Local Tax Code is based on material differences, in that the activities of customs partake
more of a business, rather than a profession and were thus subjected to the percentage tax under
Section 174 of the Tax Code prior to its amendment by EO 273. EO 273 abolished the percentage tax
and replaced it with the VAT. If the Association did not protest the classification of customs brokers
then, there is no reason why it should protest now.

Tan vs. Del Rosario

237 SCRA 324

Facts: Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme
(SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and
different treatment in the professionals which petitioners assail as unconstitutional for being isolative
of the equal protection clause in the constitution.

Issue: Is the contention meritorious?

Ruling: No. uniformity of taxation, like the hindered concept of equal protection, merely require that
all subjects or objects of taxation similarly situated are to be treated alike both privileges and
liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is
germane to the purpose of the law. It is not limited to existing only and must apply equally to all
members of the same class.

The legislative intent is to increasingly shift the income tax system towards the scheduled approach in
taxation of individual taxpayers and maintain the present global treatment on taxable corporations.
This classification is neither arbitrary nor inappropriate.

Ormoc Sugar vs Treasurer of Ormoc City (1968)

Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all
productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax
equivalent to 1% per export sale to the United States and other foreign countries. The company paid
the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being
unconstitutional.

Issue: Whether the ordinance violates the equal protection clause.

Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co.
Inc. and none other. At the time of the taxing ordinances enacted, the company was the only sugar
central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future
conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any
subsequently established sugar central, of the same class as the present company, from the
coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the
tax because the ordinance expressly points only to the company as the entity to be levied upon.

Philippine Rural Electric Cooperatives Association, Inc. v. Secretary of Interior and Local
Government
G.R. No. 143076, June 10, 2003
FACTS: This is a petition for Prohibition under Rule 65 of the Rules of Court with prayer for the
issuance of a temporary restraining order seeking to annul as unconstitutional sections 193 and 234
of R.A. No. 7160 otherwise known as the Local Government Code. A class suit was filed by
petitioners in their own behalf and in behalf of other electric cooperatives organized and existing
under P.D. No. 269 who are members of petitioner Philippine Rural Electric Cooperatives
Association, Inc. (PHILRECA). Petitioners contend that pursuant to the provisions of P.D. No. 269, as
amended, and the provision in the loan agreements of the government of the Philippines with the
government of the United State of America, they are exempt from payment of local taxes, including
payment of real property tax. With the passage of the Local Government Code, however, they allege
that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193
and 234 of the Local Government Code on the ground that the said provisions discriminate against
them, in violation of the equal protection clause. Further, they submit that the said provisions are
unconstitutional because they impair the obligation of contracts between the Philippine Government
and the United States Government.

ISSUE: Did Sections 193 and 234 of the Local Government Code violate the equal protection clause?

HELD: NO. The pertinent parts of Sections 193 and 234 of the Local Government Code provide:

Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned and controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from real property tax. The following are exempted from payment of the real
property tax:

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons whether natural or juridical, including all government-owned and
controlled corporations are hereby withdrawn upon effectivity of this Code.

Petitioners argue that the above provisions of the Local Government Code are unconstitutional for
violating the equal protection clause. Allegedly, said provisions unduly discriminate against petitioners
who are duly registered cooperatives under P.D. No. 269, as amended, and not under R.A. No. 6938
or the Cooperative Code of the Philippines. The Court holds taht there is reasonable classification
under the Local Government Code to justify the different tax treatment between electric cooperatives
covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938. First,
substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and
cooperatives under R.A. No. 6938 on two material points, to wit 1) the capital contributions of the
members, and 2) the extent of government control over cooperatives. Second, the classification of
tax-exempt entities in the Local Government Code is germane to the purpose of the law. The
Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean
that the exercise of power by local governments is beyond regulation by Congress. Thus, while each
government unit is granted the power to create its own sources of revenue, Congress, in light of its
broad power to tax, has the discretion to determine the extent of the taxing powers of local
government units consistent with the policy of local autonomy. Section 193 of the Local Government
Code is indicative of the legislative intent to vest broad taxing powers upon local government units
and to limit exemptions from local taxation to entities specifically provided therein. Section 193
provides:

Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned and controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.

The above provision effectively withdraws exemptions from local taxation enjoyed by various entities
and organizations upon effectivity of the Local Government Code except for a) local water districts; b)
cooperatives duly registered under R.A. No. 6938; and c) non-stock and non-profit hospitals and
educational institutions.

Further, petitioners argue that as beneficiaries of the loan proceeds all the assets of petitioners, such
as lands, buildings, distribution lines acquired through the proceeds of the Loan Agreements are tax
exempt. The Court holds otherwise. A plain reading of the provision readily shows that it does not
grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan
itself or the properties acquired through the said loan. It simply states that the loan proceeds and the
principal and interest of the loan, upon repayment by the borrower, shall be without deduction of any
tax or fee that may be payable under Philippine law as such tax or fee will be absorbed by the
borrower with funds other than the loan proceeds.

People of the Philippines vs. Judy Anne Santos,

CTA CRIM. CASE NO. O-012, January 16, 2013
Facts: The accused, Judy Anne Santos is charged for filing a false and fraudulent Income Tax
Return (ITR) for the taxable year 2002 by indicating therein a gross income of P 8, 003,332.70,
when in truth and in fact her correct income for taxable year 2002 is P 16, 396, 234.70. She is
prosecuted for violation Section 255 of the 1997 NIRC as amended for her failure to supply
correct and accurate information, which resulted to an income tax deficiency in the amou nt of P
1, 395,116.24, excluded interest and penalties thereon in the amount of P 1, 319, 500. 94, or in
the aggregate income tax deficiency of P 2, 714,617.18.
Issue: Whether or not the accused may be held liable for violation of Section 255 of the Nation al
Internal Revenue Code, as amended.
Held: Section 255 enumerates the following offenses:
a. Willful failure to pay tax;
 b. Willful failure to make a return;
c. Willful failure to keep any record;
d. Willful failure to supply correct and accurate information;
e. Willful failure to withhold or remit taxes withheld; or
f. Willful failure to refund excess taxes withheld on compensation.
One of the offenses above-enumerated is willful failure to supply correct and accurate
information, which is being attributed to the accused. The elements of the said offense are as
follows:
1. That a person is required to supply correct and accurate information;
2. That there is failure to supply correct and accurate information at the time or times
required by law or rules and regulations; and
3. That such failure to supply correct and accurate information is done wilfully.
Require to supply Correct and Accurate Information
Based on the records of the case, the accused unequivocally admitted that as early as eight (8)
years old, she entered the entertainment industry, and that at present is an established movie
actress, celebrity endorser and showbiz personality. Further, for the subject taxable year 2002,
she admitted that she entered into contracts for her engagement as a professional entertain er,
movie actress, and product endorser. With this, accused is required to file an income tax return
for all her income from all sources.
The prosecution was able to prove that the accused, earning her professional income as an
entertainer is required to file an income tax return, as she did, and that accused apparently
supplied correct and accurate information thereof.
Failure to Supply Correct and Accurate Information at the Time Required by Law
The prosecution was able to prove the element of failure to supply correct and accurate
information at the time required by law.
The prosecution presented that there were:
a. Undeclared income form ABS-CBN Broadcasting Corporation
b. Undeclared income from Viva Productions, Inc.
c. Undeclared income from Star Cinema Productions, Inc.
d. Undeclared income from Regal Entertainment, Inc.
e. Undeclared income from Century Canning Corporation
From the foregoing, the prosecution was able to show that from the declared Gross Taxable
Professional Income of the accused in the amount of P 8, 003, 332.70, in her ITR for the taxable
year 2002, accused has an aggregate amount of P16, 396, 234.70, or a gross underdeclaration
of P 8, 362, 902.00.
Willful Failure to Supply Correct and Accurate Information
As early discussed, the prosecution was able to prove that the accused failed to supply correct
and accurate information in her ITR for the year2002 for her failure declare her other income
payments received from other sources.
However, it is well settled that mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.
Based on the records of the case, the accused denied the signature appearing on top of the
name Judy Anne Santos in the ITR for taxable year 2002, presented by the prosecution, and
that the Certified Public Accountant, whos participation is limited to the preparation of the
Financial Statements attached to the return, likewise, denied signing the return on behalf of the
accused. Further, the working papers were all provided by the manager of t he accused.
The Court, therefore, finds the records bereft of any evidence to establish the element of
wilfulness on the part of the accused to supply the correct and accurate information on her
subject return.
The Court, however, only finds the accused negligent; and such is not enough to convict her in
the case at bench.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax
contemplated by law. Fraud must amount to intentional wrong-doing with the sole object of
avoiding the tax.
The Court also notes the intention of the accused to settle the case were it not for the opposition
of her Manager and then counsel, which negated any motive of the accused to commit fraud.
In sum, the Court finds the failure of the prosecution to establish the guilt of the accused beyond
the required reasonable doubt.
American Bible Society v City of Manila
GR No. L-9637, April 30, 1957

FACTS: In the course of its ministry, the Philippine agency of American Bible Society (a foreign, non-
stock, non-profit, religious,
missionary corporation) has been distributing and selling bibles and/or gospel portions thereof
throughout the Philippines. The acting City Treasurer of Manila informed plaintiff that it was
conducting the business of general merchandise since November 1945, without providing itself with
the necessary Mayors permit and municipal license, in violation of Ordinance No. 3000, as amended,
and Ordinances Nos. 2529, 3028 and 3364. The society paid such under protest and filed suit
questioning the legality of the ordinances under which the fees are being collected.

ISSUES:

1. Whether or not the ordinances of the City of Manila are constitutional and valid
2. Whether the provisions of said ordinances are applicable or not to the case at bar

RULING:
1. Yes, they are constitutional. The ordinances do not deprive defendant of his constitutional right of
the free exercise and enjoyment of religious profession and worship, even though it prohibits him from
introducing and carrying out a scheme or purpose which he sees fit to claim as part of his religious
system. It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional,
even if applied to plaintiff society.

2. The ordinance is inapplicable to said business, trade or occupation of the plaintiff. Even if religious
groups and the press are not altogether free from the burdens of the government, the act of
distributing and selling bibles is purely religious and does not fall under Section 27e of the Tax Code
(CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not
necessarily mean it is already engaged in business for profit. Thus, the Ordinances are not applicable
to the Society.

Tolentino v. Secretary of Finance

FACTS: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. RA 7716 seeks to widen the tax base of the existing
VAT system and enhance its administration by amending the National Internal Revenue Code. There
are various suits challenging the constitutionality of RA 7716 on various grounds.

One contention is that RA 7716 did not originate exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution, because it is in fact the result of the consolidation of 2
distinct bills, H. No. 11197 and S. No. 1630. There is also a contention that S. No. 1630 did not pass
3 readings as required by the Constitution.
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) ofthe Constitution

Held: The argument that RA 7716 did not originate exclusively in the House of Representatives as
required by Art. VI, Sec. 24 of the Constitution will not bear analysis. To begin with, it is not the law
but the revenue bill which is required by the Constitution to originate exclusively in the House of
Representatives. To insist that a revenue statute and not only the bill which initiated the legislative
process culminating in the enactment of the law must substantially be the same as the House bill
would be to deny the Senates power not only to concur with amendments but also to propose
amendments. Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff
or tax bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs and
problems. Nor does the Constitutionprohibit the filing in the Senate of a substitute bill in anticipation of
its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill.
The next argument of the petitioners was that S. No. 1630 did not pass 3 readings on separate days
as required by the Constitution because the second and third readings were done on the same day.
But this was because the President had certified S. No. 1630 as urgent. The presidential certification
dispensed with the requirement not only of printing but also that of reading the bill on separate days.
That upon the certification of a billby the President the requirement of 3 readings on separate days
and of printing and distribution can be dispensed with is supported by the weightof legislative
practice.
Casanovas v Hord
GR No. 3473, March 22, 1907

FACTS: In January 1897, the Spanish Government, in accordance with the provisions of the royal
decree of May 14, 1867, granted J. Casanovas certain mines in the Province of Ambos Camarines.
They were so considered by the Collector of Internal Revenue and were by him said to fall within the
provisions of Section 134 of Act 1189 which imposes an annual tax and an ad valorem tax on all valid
perfected mining concessions granted prior to April 11th, 1899. The Commissioner, JNO S. Hord,
imposed upon these properties the tax mentioned in Section 134, which Casanovas paid under
protest.

ISSUE: Is Section 134 valid?

RULING: No, the concessions granted by the Government of Spain to the plaintiff, constitute
contracts between the parties; that section 134 of the Internal Revenue Law impairs the obligation of
these contracts, and is therefore void as to them. The deed constituted a contract between the
Spanish Government and Casanovas. Furthermore, the section conflicts with Section 60 of the Act of
Congress of July 1, 1902, which indicate that concessions can be cancelled only by reason of
illegality in the procedure by which they were obtained, or for failure to comply with the conditions
prescribed as requisites for their retention in the laws under which they were granted. The grounds
were not shown nor claimed in the case.
Cagayan Electric Power & Light Co. Inc. v CIR
GR No. L-60126, September 25, 1985

FACTS: Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3%
tax on gross earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431
amended the franchise by making all corporate taxpayers liable for income tax. In 1969, through RA
6020, its franchise was extended to two other towns and the tax exemption was reenacted. The
commissioner required the company to pay deficiency income taxes for the intervening period (1968-
1969).

ISSUE: Is CEPALCO liable for the tax?

RULING: Yes. Congress could impair the companys legislative franchise by making it liable for
income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the
public interest so requires. However, it cannot be denied that the said 1969 assessment appears to
be highly controversial. It had reason not to pay income tax because of the tax exemption its
franchise. For this reason, it should be liable only for tax proper and should not be held liable for
surcharge and interest.

Manila Electric Company v. Province of Laguna

(G.R. No. 131359. May 5, 1999)
FACTS: MERALCO was granted a franchise by several municipal councils and the National
Electrification Administration to operate an electric light and power service in the Laguna. Upon
enactment of Local Government Code, the provincial government issued ordinance imposing
franchise tax. MERALCO paid under protest and later claims for refund because of the duplicity with
Section 1 of P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more recent law
(LGC). MERALCO filed with the RTC a complaint for refund, but was dismissed. Hence, this petition.

ISSUE: Whether or not the imposition of franchise tax under the provincial ordinance is violative of
the non-impairment clause of the Constitution and of P.D. 551.

HELD: No. There is no violation of the non-impairment clause for the same must yield to the inherent
power of the state (taxation). The provincial ordinance is valid and constitutional.

RATIO: The Local Government Code of 1991 has incorporated and adopted, by and large, the
provisions of the now repealed Local Tax Code. The 1991 Code explicitly authorizes provincial
governments, notwithstanding any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Article XII, Section 11, of the
1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that
no franchise for the operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when the common
good so requires.

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), Petitioner,

vs.
PROVINCIAL ASSESOR OF SOUTH COTABATO, PROVINCIAL TREASURER OF SOUTH
COTABATO, MUNICIPAL ASSESSOR OF TUPI, SOUTH COTABATO, and MUNICIPAL
TREASURER OF TUPI, SOUTH COTABATO, Respondents.
G.R. No. 144486. April 13, 2005

Facts: R.A. No. 2036 of 1957, as amended by R.A. No. 4054, granted RCPI a 50-year franchise.
Thus, Sec. 14 of the amended law, in gist, provides that the grantee shall pay the same taxes as may
be required by law. Said tax shall be in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal, provincial or national, from
which taxes the grantee is hereby expressly exempted.

On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI real property taxes
from 1981 to 1985. The municipal treasurer demanded that RCPI pay P166,810 as real property tax
on its radio station building in Barangay Kablon, as well as on its machinery shed, radio relay station
tower and its accessories, and generating sets, based on the following tax declarations.

RCPI protested the assessment before the Local Board of Assessment Appeals (LBAA') and claimed
that all its assessed properties are personal properties and thus exempt from the real property tax. It
also pointed out that its franchise exempts RCPI from 'paying any and all taxes of any kind, nature or
description in exchange for its payment of tax equal to one and one-half per cent on all gross receipts
from the business conducted under its franchise. It further claimed that any deviation from its
franchise would violate the non-impairment of contract clause of the Constitution. Finally, RCPI stated
that the value of the properties assessed has depreciated since their acquisition in the 1960s.

The Provincial Assessor of South Cotabato opposed RCPI's claims on all points.
The Local Board of Assessment Appeals ruled that appellant is ordered to pay the real property
taxes, inclusive of all penalties, surcharges and interest accruing as of the date of actual payment, on
the properties covered; in which the Central Board of Assessment Appeals affirmed.

The Appelate Court ruled that decision of the Central Board of Assessment Appeals is hereby
MODIFIED. Petitioner is declared exempt from paying the real property taxes assessed upon its
machinery and radio equipment mounted as accessories to its relay tower. The decision assessing
taxes upon petitioner's radio station building, machinery shed, and relay station tower is, however,
affirmed.

Issues:

1. Whether the appellate court erred when it excluded RCPI's tower, relay station building, and
machinery shed from tax exemption; and
2. Whether the appellate court erred when it did not resolve the issue of nullity of the tax declarations
and assessments due to non-inclusion of depreciation allowance.

Held: Exemption from Real Property Tax

First, Congress passed the Local Government Code that withdrew all the tax exemptions existing at
the time of its passage including that of RCPI's. Second, Congress enacted the franchise of
telecommunications companies, such as Islacom, Bell, Island Country, IslaTel, TeleTech, Major
Telecoms, and Smart, with the 'in lieu of all taxes' proviso. Third, Congress passed RA 7925 entitled
'An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery
of Public Telecommunications Services' which, through Section 23, mandated the equality of
treatment of service providers in the telecommunications industry.

The existing legislative policy is clearly against the revival of the 'in lieu of all taxes' clause in
franchises of telecommunications companies. After the VAT on telecommunications companies took
effect on January 1, 1996, Congress never again included the 'in lieu of all taxes' clause in any
telecommunications franchise it subsequently approved. RCPI cannot also invoke the equality of
treatment clause under Section 23 of Republic Act No. 7925. The franchises of the petitioners all
expressly declare that the franchisee shall pay the real estate tax, using words similar to Section
14 of RA 2036, as amended.

It is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and
liberally in favor of the taxing authority. It is the taxpayer's duty to justify the exemption by words too
plain to be mistaken and too categorical to be misinterpreted.

Exclusion of Depreciation Allowance

RCPI contends that the tax declarations and assessments covering its radio relay station tower, radio
station building, and machinery shed are void because the assessors did not consider depreciation
allowance in their assessments. The Court have examined the records of this case and found that
RCPI raised before the LBAA and the CBAA the nullity of the assessments due to the non-inclusion
of depreciation allowance. Therefore, RCPI did not raise this issue for the first time. However, even if
the court considers this issue, under the Real Property Tax Code depreciation allowance applies only
to machinery and not to real property.

The petition is denied and affirmed the decision of the Court of Appeals.

City Government of Quezon City v. Bayan Telecommunications, Inc.

[G.R. No.162015. March 6, 2006]

FACTS: Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder

under Republic Act (R.A.) No. 3259 (1961) to establish and operate radio stations for domestic
telecommunications, radiophone, broadcasting and telecasting. Section 14 (a) of R.A. No. 3259
states: The grantee shall be liable to pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, xxx. In 1992, R.A. No. 7160, otherwise known as the
Local Government Code of 1991 (LGC) took effect. Section 232 of the Code grants local
government units within the Metro Manila Area the power to levy tax on real properties. Barely few
months after the LGC took effect, Congress enacted R.A. No. 7633, amending Bayantels original
franchise. The Section 11 of the amendatory contained the following tax provision: The grantee, its
successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, xxx. In 1993, the government of Quezon City enacted
an ordinance otherwise known as the Quezon City Revenue Code withdrawing tax
exemption privileges.

ISSUE: Whether or not Bayantels real properties in Quezon City are exempt from real property
taxes under its franchise.

RULING: YES. A clash between the inherent taxing power of the legislature, which necessarily
includes the power to exempt, and the local governments delegated power to tax under the aegis of
the 1987 Constitution must be ruled in favor of the former. The grant of taxing powers to LGUs
under the Constitution and the LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to
local governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.
The legislative intent expressed in the phrase exclusive of this franchise cannot be construed other
than distinguishing between two (2) sets of properties, be they real or personal, owned by the
franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications
business, and (b) those properties which are not so used. It is worthy to note that the properties
subject of the present controversy are only those which are admittedly falling under the first category.
Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already
withdrawn Bayantels former exemption from realty taxes, the Congress using, Section 11 thereof
with exactly the same defining phrase exclusive of this franchise is the basis for Bayantels
exemption from realty taxes prior to the LGC. In plain language, the Court views this subsequent
piece of legislation as an express and real intention on the part of Congress to once again remove
from the LGCs delegated taxing power, all of the franchisees (Bayantels) properties that are
actually, directly and exclusively used in the pursuit of its franchise.

SMART vs. City of Davao

Facts: On February 18, 2002, Smart filed a special civil action for declaratory relief, for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao. Smart contends
that its telecenter in Davao City is exempt from payment of franchise tax to the City because the
power of the City of Davao to impose a franchise tax is subject to statutory limitations such as the in
lieu of all taxes clause found in Section 9 of R.A. No. 7294 (Smarts franchise). Respondents
contested the tax exemption claimed by Smart. They invoked the power granted by the Constitution
to local government units to create their own sources of revenue. On July 19, 2002, the RTC
rendered its Decision denying the petition. The trial court noted that the ambiguity of the in lieu of all
taxes provision in R.A. No. 7294, on whether it covers both national and local taxes, must be
resolved against the taxpayer.

Issue: Whether or not Smart is liable to pay the franchise tax imposed by the City of Davao.

Held: Petition is denied. It is not clear whether the in lieu of all taxes provision in the franchise of
Smart would include exemption from local or national taxation. What is clear is that Smart shall pay
franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under
its franchise. But whether the franchise tax exemption would include exemption from exactions by
both the local and the national government is not unequivocal. The uncertainty in the in lieu of all
taxes clause in R.A. No. 7294 on whether Smart is exempted from both local and national franchise
tax must be construed strictly against Smart which claims the exemption. Smart has the burden of
proving that, aside from the imposed 3% franchise tax; Congress intended it to be exempt from all
kinds of franchise taxes whether local or national. Tax exemptions are never presumed and are
strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be
given force when the grant is clear and categorical. In this case, the doubt must be resolved in favor
of the City of Davao. The in lieu of all taxes clause applies only to national internal revenue taxes
and not to local taxes.

QUEZON CITY vs. ABS-CBN BROADCASTING CORPORATION - Local Franchise Tax

FACTS: ABS-CBN was granted a franchise which provides that it shall pay a 3% franchise tax and
the said percentage tax shall be in lieu of all taxes on this franchise or earnings thereof. It thus filed
a complaint against the imposition of local franchise tax.

ISSUE: Does the in lieu of all taxes provision in ABS-CBNs franchise exempt it from payment of the
local franchise tax?

HELD: NO. The right to exemption from local franchise tax must be clearly established beyond
reasonable doubt and cannot be made out of inference or implications.

The uncertainty over whether the in lieu of all taxes provision pertains to exemption from local or
national taxes, or both, should be construed against Respondent who has the burden to prove that it
is in fact covered by the exemption claimed. Furthermore, the in lieu of all taxes clause in
Respondents franchise has become ineffective with the abolition of the franchise tax on broadcasting
companies with yearly gross receipts exceeding P10 million as they are now subject to the VAT.

Lladoc vs Commisioner of Internal Revenue (1965)

Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of
Victorias, Negros Occidental; the amount spent for the construction of a new Catholic Church in the
locality,m as intended. In1958, MB Estate filed the donors gift tax return. In 1960, the Commissioner
issued an assessment for donees gift tax against the parish. The priest lodged a protest to the
assessment and requested the withdrawal thereof.

Issue: Whether the Catholic Parish is tax exempt.

Held: The phrase exempt from taxation should not be interpreted to mean exemption from all kinds
of taxes. The exemption is only from the payment of taxes assessed on such properties as property
taxes as contradistinguished from excise taxes. A donees gift tax is not a property tax but an excise
tax imposed on the transfer of property by way of gift inter vivos. It does not rest upon general
ownership, but an excise upon the use made of the properties, upon the exercise of the privilege of
receiving the properties. The imposition of such excise tax on property used for religious purpose do
not constitute an impairment of the Constitution.

The tax exemption of the parish, thus, does not extend to excise taxes.

REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE and The
COURT of TAX APPEALS. G.R. No. L-19201. June 16, 1965
FACTS: M.B. Estate, Inc. donated P10,000.00 in cash to the parish priest of Victorias, Negros
Occidental, for the construction of a new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.
A year later, M.B. Estate, Inc., filed the donor's gift tax return. CIR issued an assessment for donee's
gift tax against the parish, of which petitioner was the priest.
Petitioner filed a protest which was denied by the CIR. He then filed an appeal with the CTA citing
that he was not the parish priest at the time of donation, that there is no legal entity or juridical person
known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the
donee's gift tax and that assessment of the gift tax is unconstitutional.
The CTA denied the appeal thus this case.
ISSUE: Whether petitioner and the parish are liable for the donee's gift tax.
RULING: Yes for the parish. The Constitution only made mention of property tax and not of excise tax
as stated in Section 22, par 3. The assessment of the CIR did not rest upon general ownership; it was
an excise upon the use made of the properties, upon the exercise of the privilege of receiving the
properties. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by
way of gift inter vivos, the imposition of which on property used exclusively for religious purposes,
does not constitute an impairment of the Constitution.
No for the petitioner. The Court ordered petitioner to be substituted by the Head of Diocese to pay the
said gift tax after the CIR and Solicitor General did not object to such substitution.

Abra Valley College vs Aquino

(G.R. No. L-39086)

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the
Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for non-
payment of real estate taxes and penalties amounting to P5,140.31. Said Notice of Seizure by
respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the
satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. The trial court ruled for the government, holding that the second floor of the
building is being used by the director for residential purposes and that the ground floor used and
rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not
being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of
the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme
Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants
exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or
educational purposes. Reasonable emphasis has always been made that the exemption extends to
facilities which are incidental to and reasonably necessary for the accomplishment of the main
purposes. The use of the school building or lot for commercial purposes is neither contemplated by
law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern
Marketing Corporation cannot by any stretch of the imagination be considered incidental to the
purpose of education. The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact that the ground
floor is being used for commercial purposes (leased) and the second floor being used as incidental to
education (residence of the director).

Herrera vs. Quezon City Board of Assessment Appeals

GR L-15270, 30 September 1961

Facts: In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester
Ochangco Herrera to establish and operate the St. Catherines Hospital. In 1953, the Herreras sent a
letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the
hospital, stating that the same was established for charitable and humanitarian purposes and not for
commercial gain. The exemption was granted effective years 1953 to 1955. In 1955, however, the
Assessor reclassified the properties from exempt to taxable effective 1956, as it was ascertained
that out 32 beds in the hospital, 12 of which are for pay-patients. A school of midwifery is also
operated within the premises of the hospital.

Issue: Whether St. Catherines Hospital is exempt from reallty tax.

Held: The admission of pay-patients does not detract from the charitable character of a hospital, if all
its funds are devoted exclusively to the maintenance of the institution as a public charity. The
exemption in favor of property used exclusively for charitable or educational purpose is not limited to
property actually indispensable therefore, but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purpose, such as in the case of hospitals a
school for training nurses; a nurses home; property used to provide housing facilities for interns,
resident doctors, superintendents and other members of the hospital staff; and recreational facilities
for student nurses, interns and residents. Within the purview of the Constitution, St. Catherines
Hospital is a charitable institution exempt from taxation.

Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte

FACTS: The Roman Catholic Apostolic Church represented by the Bishop of Nueva Segovia,
possessed and owned a parcel of land in the municipality of San Nicolas, Ilocos Norte, 4 sides of
which face the public streets. On south side is the church yard, the convent and an adjacent lot used
as vegetable garden. At the center is the rest of the yard and the church on the north is an old
cemetery with two of its walls still standing, and a portion were formally stood a tower.
As required by the Provincial Board, plaintiff paid under protest on July 3, 1925 the land tax on the lot
adjoining the convent which formerly was the cemetery. Plaintiff filed action for recovery of sum paid
by to the Provincial Board by way of land tax, alleging that the collection of tax is illegal. The Lower
Court absolved the Provincial Board and declared that the tax collected on the lot was legal. Both
parties appealed from this judgment.
ISSUE: WON Plaintiff is exempted in the payment of land tax?
HELD: YES. The exemption from payment of land tax of a convent refers to the home of the party
who resides over the church and who has to take care of himself in order to discharge his duties. It is
therefore include not only the land actually occupied by the church, but also the adjacent ground
destined for the ordinary and incidental uses of the occupant. Except in large cities where density of
the population and the development of commerce require the use of larger tracts of land for buildings,
a vegetable garden belongs to a house and in the present case, its use is limited to the necessities of
the priest, which comes under exemption.
As regards to the lot which formerly was the cemetery, while it is no longer used as such, neither is it
used for commercial purposes and according to the evidence, is now being used as a lodging house
by the people who participate in religion festivities, which constitutes an incidental use in religious
functions, which also comes within the exemption.
The judgment appealed from is reversed in all its part and it is held that both lots are exempt from
land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without
any special pronouncement as to cost. So Ordered.

LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY

G.R. No. 144104, June 29, 2004

FACTS: Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks
exemption from real property taxes when the City Assessor issued Tax Declarations for the land and
the hospital building. Petitioner predicted on its claim that it is a charitable institution. The request was
denied, and a petition hereafter filed before the Local Board of Assessment Appeals of Quezon City
(QC-LBAA) for reversal of the resolution of the City Assessor. Petitioner alleged that as a charitable
institution, is exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA
dismissed the petition and the decision was likewise affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

ISSUES:
1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and
1987 Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and
1987 Constitution. Under PD 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the President with the
Ministry of Health and the Ministry of Human Settlements. The purpose for which it was created was
to render medical services to the public in general including those who are poor and also the rich, and
become a subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the gift
or donation is in the form of subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for
its real properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only.
This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to
the exemption, the lung center must be able to prove that: it is a charitable institution and; its real
properties are actually, directly and exclusively used for charitable purpose. Accordingly, the portions
occupied by the hospital used for its patients are exempt from real property taxes while those leased
to private entities are not exempt from such taxes.

CIR vs. St. Luke's Medical Center, Inc.

FACTS: St. Luke's is a non-stock non-profit hospital. The BIR assessed St. Luke's based on the
argument that Section 27(B) of the Tax Code should apply to it and hence all of St. Luke's income
should be subject to the 10% tax therein as it is a more specific provision and should prevail over
Section 30 which is a general provision. St. Luke's countered by saying that its free services to
patients was 65% of its operating income and that no part of its income inures to the benefit of any
individual.
ISSUE: Does Section 27(B) have the effect of taking proprietary non-profit hospitals out of the income
tax exemption under Section 30 of the Tax Code and should instead be subject to a preferential rate
of 10% on its entire income?
RULING: No. The enactment of Section 27(B) does not remove the possible income tax exemption of
proprietary non-profit hospitals. The only thing that Section 27(B) captures (at 10% tax) in the case of
qualified hospitals is in the instance where the income realized by the hospital falls under the last
paragraph of Section 30 such as when the entity conducts any activity for profit. The revenues
derived by St. Luke's from pay patients are clearly income from activities conducted for profit.

Angeles University Foundation vs. City of Angeles

FACTS: Petitioner is a non-stock, non-profit educational foundation. It received a building permit fee
assessment for the construction of the AUF Medical Center but claimed exemption from the same as
well as from other permits and fees by virtue of Republic Act No. 6055. Respondent disputed the
claimed exemption by stating that the impositions are regulatory in nature and not taxes from which
petitioner is exempt under the said law.
ISSUE: Is the building permit fee a tax from which petitioner is exempt?
RULING: No. It is a regulatory fee. The DPWH has in fact issued implementing rules which provide
the bases for assessment of fees and petitioner has failed to show that they were arbitrarily
determined or unrelated to the activity being regulated. Neither has there been proof that the fee was
unreasonable or in excess of the cost of regulation or inspection. The Court added that even if there
was incidental revenue, the same is deemed not to change the nature of the charge. Thus, the City of
Angeles was justified in its assessment.
 CIR v CA & YMCA
GR No 124043, October 14, 1998

FACTS: In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to
small shop owners, like restaurants and canteen operators and 44,259 from parking fees collected
from non-members. On July 2, 1984, the CIR issued an assessment to YMCA for deficiency taxes
which included the income from lease of YMCAs real property. YMCA formally protested the
assessment but the CIR denied the claims of YMCA. On appeal, the CTA ruled in favor of YMCA and
excluded income from lease to small shop owners and parking fees. However, the CA reversed the
CTA but affirmed the CTA upon motion for reconsideration.

ISSUE: Whether the rental income of YMCA is taxable

RULING: Yes. The exemption claimed by YMCA is expressly disallowed by the very wording of then
Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA)
from any of their properties, real or personal, be subject to the tax imposed by the same Code. While
the income received by the organizations enumerated in Section 26 of the NIRC is, as a rule,
exempted from the payment of tax in respect to income received by them as such, the exemption
does not apply to income derived from any of their properties, real or personal or from any of their
activities conducted for profit, regardless of the disposition made of such income.

CIR V SC JOHNSON INC. June 25, 1999

Facts: Respondent is a domestic corporation organized and operating under the Philippine Laws,
entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident foreign
corporation based in the USA pursuant to which the respondent was granted the right to use the
trademark, patents and technology owned by the later including the right to manufacture, package
and distribute the products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son USA.

For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA
royalties based on a percentage of net sales and subjected the same to 25% withholding tax on
royalty payments which respondent paid for the period covering July 1992 to May 1993 in the total
amount of P1,603,443.00.

On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a
claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending
respondents case fall squarely within the same circumstances under which said MacGeorge and
Gillette rulings were issued. Since the agreement was approved by the Technology Transfer Board,
the preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent
to SC Johnson and Son, USA is only subject to 10% withholding tax.
The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc.
then filed a petition for review before the CTA, to claim a refund of the overpaid withholding tax on
royalty payments from July 1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue
a tax credit certificate in the amount of P163,266.00 representing overpaid withholding tax on royalty
payments beginning July 1992 to May 1993.

The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal
on November 7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.

Issue: Whether or not tax refunds are considered as tax exemptions.

Held: It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered
as in derogation of sovereign authority and to be construed strictissimi juris against the person or
entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor
and he must be able to justify his claim by the clearest grant of organic or statute law. Private
respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is
nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under
similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

G.R. No. L-18384 September 20, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
HEIRS OF CESAR JALANDONI, ET AL., defendants-appellants.

BAUTISTA ANGELO, J.:

Isabel Ledesma died intestate on June 23, 1948 leaving real properties situated in the provinces of
Negros Occidental and Rizal and in the cities of Manila and Baguio, and personal properties
consisting of shares of stock in various domestic corporations. She left as heirs her husband
Bernardino Jalandoni and three children, namely, Cesar, Angeles and Delfin, all surnamed Jalandoni.

On November 19, 1948, Cesar Jalandoni, one of the heirs, filed an estate and inheritance tax return
reporting the following: (1) that the real and personal properties owned by the deceased and her
surviving husband had a total market value of P1,324,555.80; (2) that after deducting therefrom the
conjugal share of her husband and some expenses the net estate subject to estate tax was
P28,148.04; and (3) that the amount subject to inheritance tax was P542,225.83. This return also
shows that no testamentary or intestate proceedings were instituted.

On the basis of this return the Bureau of Internal Revenue made an assessment on November 20,
1948 calling for the payment of the amounts of P31,435.95 and P58,863.52 as estate and inheritance
taxes, respectively, stating therein that the assessment was "to be considered partial pending
investigation of the return." These sums were paid by Cesar Jalandoni.

After a preliminary investigation was made of the properties reported in the abovementioned return, a
second assessment was made on January 27, 1953 by the Bureau of Internal Revenue showing that
there was due from the estate the amounts of P5,539.67 and P9,899.37 as deficiency estate and
inheritance taxes, respectively, for which reason a demand was made on Bernardino Jalandoni
stating therein that the same was still "to be considered partial pending further investigation of the
return," which amounts were paid by Bernardino Jalandoni on February 28, 1953.
True to the foregoing reservation, the Bureau of Internal Revenue conducted another investigation
and this time it found (1) that the market value of the lands reported in the return filed by Cesar
Jalandoni was underdeclared in the amount of P365,149.50; (2) that seven lots which were registered
in the Talisay-Silay cadastre of Negros Occidental as belonging to the deceased, including their
improvements, were omitted from the return the same having a market value of P100,200.00; and (3)
the shares of stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine
Company and Central Azucarera de la Carlota, though included in the return, were however
underdeclared in the amount of P16,355.36, and on the basis of these findings a third assessment
was made against the estate on May 9, 1956 wherein the heirs were required to pay the amounts of
P29,995.30 and P49,842.05 as deficiency estate and inheritance taxes, respectively, including
accrued interests, with the warning that failure on their part to pay the same would subject them to the
payment of surcharge, interest, and penalty for late payment of the tax.

In answer to this third assessment after notice was served on the administrator of the estate,
Bernardino Jalandoni, Lorenzo J. Teves, in his capacity as counsel of the heirs of the deceased,
wrote a letter to the Collector of Internal Revenue setting up the defense of prescription in the sense
that the deficiency in the estate and inheritance taxes payment of which was required therein can no
longer be collected since more than five years had already elapsed from the filing of the return
invoking in his favor Section 331 of the National Internal Revenue Code. To this defense, the
Collector retorted claiming that the stand of counsel cannot be entertained for the reason that, it
appearing that the estate and inheritance tax return which was filed by the administrator or by the
heirs contained omissions which amount to fraud indicative of an intention to evade payment of the
proper tax due the government, the taxes then being collected could still be demanded within ten
years from the discovery of the falsity or omission pursuant to Section 332(a) of said Code, which
period had not yet expired, and as a consequence, the assessment notice was reiterated with the
request that the deficiency estate and inheritance taxes therein demanded be settled as soon as
possible. And noting that the 30-day period within which the heirs could appeal the Collector's
assessment to the Court of Tax Appeals had already elapsed, while on the other hand they indicated
their unwillingness to settle the claim, the Collector of Internal Revenue filed the present case before
the Court of First Instance of Manila pressing the collection of the deficiency estate and inheritance
taxes assessed against the heirs of the deceased Isabel Ledesma Jalandoni.

While this case was pending hearing on the merits, the lower court set a date for pre-trial in an effort
to have the parties agree on a stipulation of facts, and this having failed, upon request of defendants,
the lower court ordered the Collector of Internal Revenue to verify the allegation that the seven lots in
Negros Occidental which were claimed not to have been included in the return filed by Cesar
Jalandoni were in fact included therein, and to this effect the Collector designated Examiner Genaro
Butas to conduct the examination. In his report Examiner Butas stated that of the seven lots that were
previously reported not included in the return, two were actually declared therein, though he
reaffirmed his previous finding as regards the other five lots and the market value of the sugar lands
and rice lands left by the deceased and the value of the shares of stock owned by her in several
domestic corporations.

There being no additional evidence, oral or documentary, submitted by the parties, and passing solely
on the allegations appearing in the pleadings which appear to be undisputed, the trial court rendered
its decision on February 16, 1960 ordering defendants, jointly and severally, to pay plaintiff the sum of
P79,837.35 as estate and inheritance taxes, plus the interest that had accrued thereon as a result of
their delinquency. Defendants interposed the present appeal.

It is claimed that the lower court erred in finding that the return submitted by Cesar Jalandoni in behalf
of the heirs concerning the estate of the deceased for the purpose of the payment of the required
estate and inheritance taxes is false and fraudulent there being no evidence on record showing that
said return was filed in bad faith for which reason fraud cannot be imputed to appellants. As against
this claim appellee advances the theory that since fraudulent intent is a state of mind which cannot be
proven by direct evidence, the same may be inferred from facts and circumstances that appear to be
undisputed as was done by the court a quo as follows:

The difference between the amounts appearing in the returns filed and the undeclared
properties of the estate of the deceased is a substantial understatement of the true value of the
estate in question. The court is of the opinion, and so holds that the tax returns filed were false.
A substantial understatement of stocks and the omission of seven (7) parcels of land belonging
to the estate of the deceased, makes it impossible for the court to believe that the omission or
understatements were due to inadvertence, negligence, or honest statement of error.
Circumstances such as this are competent to base a finding of willful intent.

And to bolster up this finding appellee submits the following facts which, it contends, appear in the
record: (1) among the real properties belonging to the deceased five lots in Negros Occidental,
including improvements thereon, with a market value of P58,570.00 were not included in the return
filed by a representative of appellants; (2) the value of the sugar and rice lands that were reported in
the return were underdeclared in the amount of P365,149.50; and (3) the market value of the shares
of stock owned by the deceased in the Victorias Milling Company, Hawaiian-Philippine Company and
the Central Azucarera de la Carlota was underdeclared in the amount of P16,355.36. In other words,
it is claimed that a total amount of P440,074.86 which constitutes real asset of the estate has been
deliberately omitted from the return thereby evincing an intention to evade the payment of the correct
amount of tax due to the government.

We are of the opinion that this finding is neither fair nor reasonable. To begin with, it should be here
noted that when this case was pending hearing on the merits before the lower court, the latter, upon
request of appellants, ordered the Collector of Internal Revenue to verify the allegation that there
were seven lots in Negros Occidental which were claimed not to have been included in the return filed
by Cesar Jalandoni, and to this effect the Collector designated Examiner Genaro Butas to conduct
the examination. Examiner Butas, after conducting the examination, submitted his report the pertinent
of which reads:

Lot Assessed Fair Market

Classification
No. Value Value
493 Sugarland P15,140.00 P21,630.00
710 390.00 550.00
521 21,000.00 30,000.00
954 820.00 1,230.00
939 1,210.00 1,720.00
Lot 6,080.00 6,080.00
229
House 12,000.00 12,000.00
Commercial 6,400.00 6,400.00
Concrete
228 10,000.00 10,000.00
House
Camarin 500.00 500.00
TOTAL
P73,650.00 P90,110.00
In other words, from the report of Examiner Butas the following may be gleaned: that of the seven lots
alleged to have been excluded from the return, three were actually included, with the particularity that
they were the most valuable, to wit: Lot 493 with a market value of P21,630.00; Lot 521 with a market
value of P30,000.00; and Lot 229 with a market value of P12,000.00, while another lot was not also
included because it belonged to Delfin Jalandoni, or Lot 228 which, including improvements, has a
market value of P16,900.00. Hence, from the foregoing we find that the aggregate value of the
aforesaid four lots is P86,610.00 which, if deducted from the total value of the seven lots amounting
to P90,110.00, gives a balance of P3,500.00 as the value of the three remaining lots. These three lots
being conjugal property, one-half thereof belonging to the deceased's spouse should still be
deducted, thus leaving a small balance of P1,750.00. If to this we add that, as the record shows,
these three lots were already declared in the return submitted by Bernardino Jalandoni as part of his
property and his wife for purposes of income tax, there is reason to believe that their omission from
the return submitted by Cesar Jalandoni was merely due to an honest mistake or inadvertence as
properly explained by appellants. We can hardly dispute this conclusion as it would be stretching too
much the imagination if we would find that, because of such inadvertence, which appears to be
inconsequential, the heirs of the deceased deliberately omitted from the return the three lots with the
only purpose of defrauding the government after declaring therein as asset of the estate property
worth P1,324,555.80.

The same thing may be said with regard to the alleged undervaluation of certain sugar and rice lands
reported by Cesar Jalandoni which appellee fixes at P365,149.50, for the same can at most be
considered as the result of an honest difference of opinion and not necessarily an intention to commit
fraud. It should be stated that in the estate and inheritance tax returns submitted by Cesar Jalandoni
on November 19, 1948 he reported said lands as belonging to the deceased with a statement of what
in his opinion represent their reasonable actual value but which happened not to tally with the
valuation made by the Collector of Internal Revenue. Certainly if there is any mistake in the valuation
made by Jalandoni the same can only be considered as honest mistake, or one based on excusable
inadvertence, he being not an expert in appraising real estate. The deficiency assessment, moreover,
was made by the Collector of Internal Revenue more than five years from the filing of the return, and
experience shows that such an intervening period is sufficiently long to, warrant an increase in value
of real estate which is precisely what was found by the Collector of Internal Revenue with regard to
the lands in question. It is certainly an error to impute fraud based on an honest difference of opinion.

Finally, we find unreasonable to impute with regard to the appraisal made by appellants of the shares
of stock of the deceased in Victorias Milling Company, Hawaiian-Philippine Company and Central
Azucarera de la Carlota, simply because Cesar Jalandoni placed in his return an aggregate market
value of P95,480.00, instead of mentioning the book value declared by said corporations in the
returns filed by them with the Bureau of Internal Revenue. The fact that the value given in the returns
did not tally with the book value appearing in the corporate books is not in itself indicative of fraud
especially when we take into consideration the circumstance that said book value only became
known several months after the death of the deceased. Moreover, it is a known fact that stock
securities frequently fluctuate in value and a mere difference of opinion in relation thereto cannot
serve as proper basis for assessing an intention to defraud the government.

Having reached the conclusion that the heirs of the deceased have not committed any act indicative
of an intention to evade the payment of the inheritance or estate taxes due the government, as
evidenced by their willingness in the past to pay all the taxes properly assessed against them, it is
evident that the instant claim of appellee has already prescribed under Section 331 of the National
Internal Revenue Code. And with this conclusion, a discussion of the other errors assigned by
appellants would seem to be unnecessary.
WHEREFORE, the decision appealed from is reversed and the complaint of appellee is dismissed.
No pronouncement as to costs.

Yutivo Sons Hardware Co. vs. CTA

Facts: Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in
the importation and sale of hardware supplies and equipment. After the first world war, it resumed its
business and bought a number of cars and trucks from General Motors(GM), an American
Corporation licensed to do business in the Philippines.

On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling
cars, trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe
Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivos founders.

After SMs incorporation and until the withdrawal of GM from the Philippines, the cars and
trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public.

Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and
trucks sold by GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid
no sales tax on its sales to the public.

An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal Revenue,
contends that the taxable sales were the retail sales by SM to the public and not the sales at
wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being a subsidiary of the latter.

The assessment was disputed by petitioner. After reinvestigation, a second assessment was made,
sustaining the validity of the first assessment. Yutivo contested the second assessment, alleging that
there is no valid ground to disregard the corporate personality of SM and to hold that it is
an adjunct of petitioner.

Issue: Whether or not the corporate personality of SM could be disregarded.

Held: Yes. A corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons, or, in the case of two corporations, merge them into one.
When the corporation is a mere alter ego or business conduit of a person, it may be disregarded.

SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM
was organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and
trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for
sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only until
July 1, 1947 when it became the importer. Hence, there was no tax to evade.

However, SC agreed with the respondent court that SM was actually owned and controlled by
petitioner. Consideration of variouscircumstances indicate that Yutivo treated SM merely as its
department or adjunct:

a. The founders of the corporation are closely related to each other by blood and affinity.
b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare
parts, hardware supplies and equipment.

c. The accounting system maintained by Yutivo shows that it maintained high degree of control over
SM accounts.

d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely
use forms or stationery of Yutivo.

e. All cash collections of SMs branches are remitted directly to Yutivo.

f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.

g. The principal officers of both corporations are identical. Both corporations have a common
comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.

h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not
only in the form of starting capital but also in the form of credits extended for the cars and vehicles
allegedly sold by Yutivo to SM.

Plaintiffs filed a collection action against X Corporation. Upon execution of the court's decision, X
Corporation was found to be without assets. Thereafter, plaintiffs filed an action against its present
and past stockholder Y Corporation which owned substantially all of the stocks of X corporation. The
two corporations have the same board of directors and Y Corporation financed the operations of X
corporation. May Y Corporation be held liable for the debts of X Corporation? Why?

A: Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the
veil of corporation fiction applies to this case. The two corporations have the same board of directors
and Y Corporation owned substantially all of the stocks of X Corporation, which facts justify the
conclusion that the latter is merely an extension of the personality of the former, and that the former
controls the policies of the latter. Added to this is the fact that Y Corporation controls the finances of X
Corporation which is merely an adjunct, business conduit or alter ego of Y Corporation. (CIR v.
Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964)

COMMISSIONER OF INTERNAL REVENUE v. NORTON and HARRISON COMPANY. G.R. No. L-

17618. August 31, 1964

FACTS: Norton and Harrison is a corporation organized to buy and sell at wholesale and retail all
kinds of goods and merchandise. Jackbilt is also a corporation organized on for producing concrete
blocks. On 1948, the corporations entered into an agreement whereby Norton was made the sole and
exclusive distributor of concrete blocks manufactured by Jackbilt.
On 1949, Norton purchased all the outstanding shares of stock of Jackbilt. This prompted the CIR to
investigate and eventually asses Norton and Harrison for deficiency sales tax and surcharges.
ISSUE: Whether Norton and Harrison is liable for the deficiency sales tax and surcharges.
RULING: YES. The Court ruled that Norton and Jackbilt should be considered as one. Jackbilt's
outstanding stocks, board of directors, finance of operations, employees, and compensation are all
controlled by Norton and Harrison. Jackbilt is merely an adjunct, business conduit or alter ego, of
Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should
be disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be
made to apply.
By being separate entities, the corporations would have to pay lesser income tax. The combined
taxable Norton-Jackbilt income would subject Norton to a higher tax.

Philippine Acetylene Co. Inc. v CIR

GR No L-19707, August 17, 1967

FACTS: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and
acetylene gases. It sold its products to the National Power Corporation (Napocor), an agency of the
Philippine Government, and the Voice of America (VOA), an agency of the United States
Government. When the commissioner assessed deficiency sales tax and surcharges against the
company, the company denied liability for the payment of tax on the ground that both Napocor and
VOA are exempt from taxes.

ISSUE: Is Philippine Acetylene Co. liable for tax?

RULING: Yes. Sales tax are paid by the manufacturer or producer who must make a true and
complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross
value of output actually removed from the factory or mill, warehouse and to pay the tax due thereon.
The tax imposed by Section 186 of the Tax Code is a tax on the manufacturer or producer and not a
tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly, its
levy on the sales made to tax- exempt entities like the Napocor is permissible.

On the other hand, there is nothing in the language of the Military Bases Agreement to warrant the
general exemption granted by General Circular V-41 (1947). Thus, the expansive construction of the
tax exemption is void; and the sales to the VOA are subject to the payment of percentage taxes under
Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption will not be
held to conferred unless the terms under which it is granted clearly and distinctly show that such was
the intention.

CIR vs. Pilipinas Shell Petroleum Corporation

FACTS: Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils to various
international carriers. The Court initially denied the claims but the respondent filed a Motion for
Reconsideration.

ISSUE: Whether or not Shell is entitled to refund for payment of the excise taxes

RULING: Yes. Section 135 is concerned with the exemption of the article itself and not the ostensible
exemption of the international carrier-buyer. In addition, the failure to grant exemption will cause
adverse impact on the domestic oil industry (similar to the practice of tankering) as well as result to
violations of international agreements on aviation. Thus, respondent, as the statutory taxpayer who is
directly liable to pay the excise tax, is entitled to a refund or credit for taxes paid on products sold to
international carriers.

CIR v American Rubber Company

 GR No L-19667, November 29, 1966

FACTS: American Rubber Company sold its rubber products locally and as prescribed by the
Commissioners regulation, the company declared the same for tax purposes in which the
Commissioner accordingly assessed. The company paid under protest the corresponding sales taxes
thereon, claiming exemption under Section 188b of the Tax Code, and subsequently claimed refund.
With the Commissioner refusing to do so, the case was brought before the Court of Tax Appeals,
which upheld the Commissioners stand that the company is not entitled to recover the sales tax that
had been separately billed to its customers, and paid by the latter.

ISSUE: Whether plaintiff is or is not entitled to recover the sales tax paid by it, but passed on to and
paid by the buyers of its products

RULING: Refund is proper. The sales tax is by law imposed directly, not on the thing sold, but on the
act (sale) of the manufacturer, producer or importer who is exclusively made liable for its time
payment. There is no proof that the tax paid by plaintiff is the very money paid by its customers.
Where the tax money paid by the plaintiff came from is really no concern of the Government. Anyway,
once recovered, the plaintiff must hold the refund taxes in trust for the individual purchasers who
advanced payment thereof, and whose names must appear in plaintiffs records.
It would need to tend to perpetuate illegal taxation; for the individual customers to whom the tax is
ultimately shifted will ordinarily not care to sue for its recovery, in view of the small amount paid by
each and the high cost of litigation for the reclaiming of an illegal tax. Insofar, therefore, as it favors
the imposition, collection and retention of illegal taxes, and encourages a multiplicity of suits, the tax
courts ruling under appeal violates morals and public policy.
CIR v Gotamco
GR No L-31092, February 27, 1987

FACTS: The World Health Organization (WHO) decided to construct a building to house its offices,
as well as the other United Nations Offices in Manila. Inviting bids for the construction of the building,
the WHO informed the bidders of its tax exemptions. The contract was awarded to John Gotamco
and sons. The Commissioner opined that a 3% contractors tax should be due from the contractor.
The WHO issued a certification that Gotamco should be exempted, but the Commissioner insisted on
the tax. Raised in the Court of Tax Appeals, the Court ruled in favor of Gotamco.

ISSUE: Is Gotamco liable for the tax?

RULING: No. Direct taxes are those that are demanded from the very person who, it is intended or
desired, should pay them; while indirect taxes are those that are demanded in the first instance from
one person in the expectation and intention that he can shift the burden to someone else.

Herein, the contractors tax is payable by the contractor but it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the contractor to the owner as a
matter of self-preservation. Such tax is an indirect tax on the organization, as the payment thereof or
its inclusion in the bid price would have meant an increase in the construction cost of the building.

Hence, WHOs exemption from indirect taxes implies that Gotamco is exempt from contractors tax.
 Maceda v Macaraig
GR No 88291, May 31, 1991

FACTS: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the
development of hydraulic power and the production of power from other sources. RA 358 granted
NAPOCOR tax and duty exemption privileges. RA 6395 revised the charter of the NAPOCOR,
tasking it to carry out the policy of the national electrification and provided in detail NAPOCORs tax
exceptions. PD 380 specified that NAPOCORs exemption includes all taxes, etc. imposed directly or
indirectly. PD 938 dated May 27, 1976 further amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.

ISSUE: Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment
of PD 938 on May 27, 1976 which amended PD 380 issued on January 11, 1974

RULING: No, it is still exempt.

NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly
owned by the government of the Republic of the Philippines. From the very beginning of the
corporations existence, NAPOCOR enjoyed preferential tax treatment to enable the corporation to
pay the indebtedness and obligation and effective implementation of the policy enunciated in Section
1 of RA 6395.

From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be
interpreted liberally so as to enhance the tax exempt status of NAPOCOR.

It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor
of government political subdivision or instrumentality. In the case of property owned by the state or a
city or other public corporations, the express exception should not be construed with the same degree
of strictness that applies to exemptions contrary to the policy of the state, since as to such property
exception is the rule and taxation the exception.

PLDT VS. CIR

FACTS: Petitioner PLDT claiming that it terminated in 1995 the employment of several rank and file,
supervisory and executive employees dues to redundancy. In compliance with labor law
requirements, it paid those separated employees separation pay and other benefits, and that as
employer and withholding agent, it deducted from the separation pay withholding taxes which was
remitted to BIR.
Petitioner filed with BIR a claim of tax credit or refund invoking sec. 28(b)(7)(B) of NIRC which
excluded from gross income any amount received by an official or employee or by his heirs from the
employer as a consequence of separation of such official or employee from service of the employer
due to death, sickness or other physical ability or for any cause beyond the control of the said official
or employer.

CTA denied PLDT claim on the ground that it failed to sufficiently prove that the terminated
employees received separation pay and that taxes were withheld therefrom or remitted to the BIR.

ISSUE: WON the withholding taxes, which petitioner remitted to the BIR, should be refunded for
having been erroneously withheld and paid to the later?
HELD:
PLDT failed to establish that the redundant employees actually received separation ay and it withheld
taxes therefrom and remitted the same to the BIR.

A taxpayer must do two (2) things to be able to be able to successfully make a claim for the tax
refund:
1. Declare the income payment it received as part of its gross income.
2. Establish the fact of withholding.

On this score, the relevant revenue regulations provides as follows:

Sec. 10. Claims for tax credit or refund - claims for tax credit or refund of income tax deducted and
withheld on income payments shall be given due course only when it is shown on the return that the
income payment received was declared as part of the gross income and the fact of withholding is
established by a copy of the statement duly issued by the payer to the payee showing the amount
paid and the amount of tax withheld therefrom.

SILKHAIR SINGAPORE VS CIR

G.R. No. 173594 February 6, 2008
CARPIO MORALES, J.

Lessons Applicable: Tax exemption is personal and direct

FACTS:

Petitioner Silkair (Singapore) Pte. Ltd., a foreign corp. which has a Philippine representative
office, is an outline international air carrier
Dec 19, 2001: Silkair filed with the BIR a written application for the refund of excise tax it paid
on its purchases or jet fuels from Petron Corp. from Jan - June 2000
Dec 26, 2001: not having been acted upon by the BIR, it filed a petition for review before the
CTA
CTA: denied its petition on the ground that the excise tax is imposed on Petron are
manufacturer
When the burden is shifted to Silkair, it is no longer a tax but added cost of goods purchased
After changing counsel to Atty. Pastrana CTA En Banc dismissed it for being filed out of time.
Petitioner filed a Petition for Review with the SC

ISSUE: W/N Silkair can claim a refund for indirect excise tax

HELD: Petition is denied.

NO

Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return
shall be filed and the excise tax paid by the manufacturer or producer before removal of
domestic products from place of production." Thus, Petron Corporation, not Silkair, is the
statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997
and Article 4(2) of the Air Transport Agreement between RP and Singapore.
 Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount
billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser
Unlike in Maceda v. Macaraig Jr. where it expressly includes indirect taxes. Rule that tax
exemptions are construed in strictissimi juris against taxpayer applies

Commissioner of Internal Revenue v. Seagate Technology

G.R. No. 153866. February 11, 2005

FACTS: Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines and is registered with the Philippine Export
Zone Authority (PEZA). The respondent is Value Added Tax-registered entity and filed for the VAT
returns. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for
Review), was filed on 4 October 1999 and no final action has been received by the respondent from
the petitioner on the claim for VAT refund. Hence, petitioner is sued in his official capacity. The Tax
Court rendered a decision granting the claim for refund and CTA affirmed the decision. Hence, the
present petition for certiorari.

ISSUE: Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the
amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased
for the period April 1, 1998 to June 30, 1999

HELD: The Petition is unmeritorious. As a PEZA-registered enterprise within a special economic

zone, respondent is entitled to the fiscal incentives and benefit provided for in either PD 66 or EO
226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic
Act Nos. (RA) 7227 and 7844. Respondent as an entity is exempt from internal revenue laws and
regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of
the VAT as a tax on consumption, for which the direct liability is imposed on one person but the
indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly
charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the
equivalent VAT on its purchases. The exemption is both express and pervasive, among other
reasons, since RA 7916 states that no taxes, local and national, shall be imposed on business
establishments operating within the ecozone. Even though the VAT is not imposed on the entity but
on the transaction, it may still be passed on and, therefore, indirectly imposed on the same entity -- a
patent circumvention of the law. That no VAT shall be imposed directly upon business
establishments operating within the ecozone under RA 7916 also means that no VAT may be passed
on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum. When
anything is prohibited directly, it is also prohibited indirectly. Special laws expressly grant preferential
tax treatment to business establishments registered and operating within an ecozone, which by law is
considered as a separate customs territory. As such, respondent is exempt from all internal revenue
taxes, including the VAT, and regulations pertaining thereto. Thus, the petition is denied and the
decision of lower courts affirmed.

CIR v. Estate of Benigno Toda Jr.

G.R. No. 147188. September 14, 2004
DAVIDE, JR., C.J.

Lessons Applicable: Tax evasion v. Tax avoidance

FACTS:

March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. Toda Jr., President and
Owner of 99.991% of outstanding capital stock, to sell the Cibeles Building and 2 parcels of land
which he sold to Rafael A. Altonaga on August 30, 1987 for P 100M who then sold it on the
same day to Royal Match Inc. for P 200M.
CIC included gains from sale of real property of P 75,728.021 in its annual income tax return
while Altonaga paid a 5% capital gains tax of P 10M
July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M evidenced by a deed of ale
of shares of stock which provides that the buyer is free from all income tax liabilities for 1987,
1988 and 1989.
Toda Jr. died 3 years later.
March 29, 1994: BIR sent an assessment notice and demand letter to CIC for deficiency of
income tax of P 79,099, 999.22
January 27, 1995: BIR sent the same to the estate of Toda Jr.
Estate filed a protest which was dismissed - fraudulent sale to evade the 35% corporate income
tax for the additional gain of P 100M and that there is in fact only 1 sale.
Since it is falsity or fraud, the prescription period is 10 years from the discovery of the falsity or
fraud as prescribed under Sec. 223 (a) of the NIRC
CTA: No proof of fraudulent transaction so the applicable period is 3 years after the last day
prescribed by law for filing the return
CA: affirmed
CIR appealed

ISSUE: W/N there is falsity or fraud resulting to tax evasion rather than tax avoidance so the period
for assessment has not prescribed.

HELD: YES. Estate shall be liable since NOT yet prescribed.

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. ax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due
(2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful.
All are present in this case. The trial balance showed that RMI debited P 40M as "other-inv.
Cibeles Building" that indicates RMI Paid CIC (NOT Altonaga)
Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax.
Generally, a sale of or exchange of assets will have an income tax incidence only when it is
consummated but such tax incidence depends upon the substance of the transaction rather
them mere formalities.


JOHN HAY PEOPLES ALTERNATIVE COALITION

[G. R. No. 119775. October 24, 2003]
Facts:R.A. No. 7227 likewise created and grantedthe Subic SEZ incentives ranging from tax and duty
free importations, exemption of businesses therein from local and national taxes, to other hallmarks of
a liberalized financial and business climate.

And R.A. No. 7227 expressly gave authority to the President to create through executive proclamatio
n, subject to the concurrence of the local government units directly affected, other Special Economic
Zones (SEZ) in the areas covered respectively by the Clark military reservation, the Wallace Air Statio
n in San Fernando, La Union, and Camp John Hay.

On July 5, 1994 then President Ramos issued Proclamation No. 420 which established a SEZ on a p
ortion of Camp John Hay.

In maintaining the validity of Proclamation No. 420, respondents contend that by extending to the Joh
n Hay SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established un
der R.A. No. 7227, the proclamation is merely implementing the legislative intent of said law to turn th
e US military bases into hubs of business activity or investment.

Issue:WON Proclamation No. 420 is constitutional by providing for national and local tax exemption
within and granting other economic incentives to the John Hay SEZ

HELD: NO!

Nowhere in RA 7227 is there a grant of tax exemption to SEZs yet to be established in base areas, u
nlike the grant under Section 12 which provides for tax exemption to the established Subic SEZ. The t
ax exemption grant to John Hay SEZ contravenes Article VI, Section 28 (4) of the 1987 Constitution w
hich provides that No law granting any tax exemption shall be passed without the concurrence of a m
ajority of all the members of Congress.

Furthermore, it is the Legislature, unless limited by a provision of the state constitution, which has the
full power to exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax. The grant by Proclamation No. 420 of tax exemption and other pri
vileges to the John Hay SEZ is VOID for being violative of the Constitution.

CIR v. CA, CTA, AdMU

GR No.115349; 18 April 1997

F A C T S: Private respondent, Ateneo de Manila University, is a non-stock, non-profit educational

institution with auxiliary units and branches all over the country. The Institute of Philippine Culture
(IPC) is an auxiliary unit with no legal personality separate and distinct from private respondent. The
IPC is a Philippine unit engaged in social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities from international organizations,
private foundations and government agencies.
On 8 July 1983, private respondent received from CIR a demand letter dated 3 June 1983, assessing
private respondent the sum of P174,043.97 for alleged deficiency contractors tax, and an
assessment dated 27 June 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for
the fiscal year ended 31 March 1978. Denying said tax liabilities, private respondent sent petitioner a
letter-protest and subsequently filed with the latter a memorandum contesting the validity of the
assessments.

After some time petitioner issued a final decision dated 3 August 1988 reducing the assessment for
deficiency contractors tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest.

The lower courts ruled in favor of respondent. Hence this petition.

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila
University "falls within the definition" of an independent contractor and "is not one of those mentioned
as excepted"; hence, it is properly a subject of the three percent contractor's tax levied by the
foregoing provision of law. Petitioner states that the "term 'independent contractor' is not specifically
defined so as to delimit the scope thereof, so much so that any person who . . . renders physical and
mental service for a fee, is now indubitably considered an independent contractor liable to 3%
contractor's tax."

I S S U E: Whether or not private respondent falls under the purview of independent contractor
pursuant to Section 205 of the Tax Code and is subject to a 3% contractors tax.

H E LD: The petition is unmeritorious.

The term "independent contractors" include persons (juridical or natural) not enumerated above
(but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code)
whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether
or not the performance of the service calls for the exercise or use of the physical or mental faculties of
such contractors or their employees.
Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without
first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously
both illogical and impractical to determine who are exempted without first determining who are
covered by the aforesaid provision. The Commissioner should have determined first if private
respondent was covered by Section 205, applying the rule of strict interpretation of laws imposing
taxes and other burdens on the populace, before asking Ateneo to prove its exemption therefrom.

Interpretation of Tax Laws. The doctrine in the interpretation of tax laws is that (a) statute will not
be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. . . . (A) tax
cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and
the provisions of a taxing act are not to be extended by implication. In case of doubt, such statutes
are to be construed most strongly against the government and in favor of the subjects or citizens
because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly
and clearly import.

Ateneos Institute of Philippine Culture never sold its services for a fee to anyone or was ever
engaged in a business apart from and independently of the academic purposes of the university.
Funds received by the Ateneo de Manila University are technically not a fee. They may however fall
as gifts or donations which are tax-exempt as shown by private respondents compliance with the
requirement of Section 123 of the National Internal Revenue Code providing for the exemption of
such gifts to an educational institution.
Transaction of IPC not a contract of sale nor a contract for a piece of work. The transactions of
Ateneos Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract for
a piece of work. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent. In the case of a contract for a piece of work, the contractor binds himself to execute
a piece of work for the employer, in consideration of a certain price or compensation. . . . If the
contractor agrees to produce the work from materials furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the thing. . . . In the case at bench, it is clear
from the evidence on record that there was no sale either of objects or services because, as adverted
to earlier, there was no transfer of ownership over the research data obtained or the results of
research projects undertaken by the Institute of Philippine Culture.

Deutsche Bank AG Manila Branch vs. CIR

FACTS: Petitioner withheld a 15% tax on its remittances to its head office in Germany using as basis
the Tax Code provision on Branch Profit Remittance Tax (BPRT). Believing that it overpaid the BPRT
since the RP-Germany Treaty provides for a lower rate of 10% on branch remittances, the petitioner
filed a refund with the Bureau of Internal Revenue (BIR) and subsequently with the Court of Tax
Appeals (CTA). Both the BIR and the CTA denied stating that the branch office should have filed a
tax treaty relief application prior to availing of the preferential treaty rate in view of the
existing doctrine n the Mirant case.

ISSUE: Whether or not Deutsche Bank is entitled to the claim for refund even if it did not file a tax
treaty relief application with the BIR

RULING: Yes. The Court initially stated that the minute resolution upholding the doctrine in Mirant is
not a binding precedent specially since there are differences in the parties, taxable period, etc. On the
substantive issue, the Court said that the principle of pacta sunt servanda requires the performance in
good faith of treaty obligations. Thus, to require that taxpayers must first comply with an
administrative requirement (under RMO 1-2000) is not in consonance with the performance in good
faith. The obligation to comply with a tax treaty must take precedence over the objectives of the said
RMO. In addition, it was pointed out that the prior application becomes illogical if the premise of the
claim was an erroneous payment since the taxpayer could not have known it would be entitled to the
refund since precisely it was using a different basis when it paid the taxes due.

CIR v. Acosta
G.R. No. 154068 August 3, 2007
QUISUMBING, J.

Lessons Applicable: Refund in the nature of tax exemption, exhaustion of administrative remedy,
prospectivity of tax laws

FACTS:
Rosemary Acosta, an employee of Intel Manufacturing Phils. Inc. assigned in a foreign country
filed on March 21, 1977 for a period of January 1, 1996-December 31, 1996, a Joint Individual
 Income Tax Return with her husband on October 8, 1997, she filed an amended return indicating
an overpayment of P 358,274 due to the income taxes withheld and paid by Intel.
April 15, 1999: She filed a petition for review with the CTA who dismissed her petition for failing to
file a written claim for refund required under Sec. 230 of the old tax code. Also, the omission of
the date of filing the final adjustment return deprived the court of its jurisdiction over the subject
matter of the case.
CA: reversed the CTA holding that the filing of an amended return indicating an overpayment was
sufficient compliance with the requirement of a written claim for refund.
Applying sec. 204 (c) of the 1997 NIRC, the CIR sought reconsideration but was denied so it
elevated the matter with the SC

ISSUES:

1. W/N the amended return is sufficient compliance of written claim

2. W/N the 1997 tax reform can be applied retrospectively

HELD: Granted.

1. NO. The requirements under Section 230 for refund claims are as follows
a. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner;
b. The claim for refund must be a categorical demand for reimbursement;
c. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be
commenced in court within 2 years from date of payment of the tax or penalty regardless of any
supervening cause
It is intended to afford the CIR an opportunity to correct the action of its subordinate officers and to
be notified. Tax refunds are in the nature of tax exemptions which are construed strictissimi
juris against the taxpayer and liberally in favor of the government
As tax refund involve a return of revenue from the government, the claimant must show the
specific provision of law as basis of her right
2. NO. Tax laws are prospective in operation, unless the language of the statute clearly
provides otherwise. Moreover, a party seeking an administrative remedy must not merely initiate
the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give the administrative agency an
opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to
court action. Revenue statutes are substantive laws and in no sense must their application be
equated with that of remedial laws which must be faithfully and strictly implemented.

CIR vs Petron
GR 185568 March 12 2012

Facts: For the taxable years of 1995-1998, Petron Corp paid its tax liabilities with the Tax Credit
Certificates (TCC) it received from different BOI-registered companies as consideration for the
delivery of petroleum products to these companies. Petrons acceptance and use of the TCCs has
been continuously approved by the Department of Finance as well as the BIR Collection Program
Division through its surrender and subsequent issuance of Tax Debit Memos (TDMs). In a post-audit
conducted by the DOF, it was found out that the TCCs issued to the TCC transferors were
fraudulently obtained and fraudulently transferred to Petron. Thus, the TCCs and TDMs issued to
Petron were cancelled by the DOF.
Now, the CIR issued an assessment against Petron for deficiency excise taxes for the taxable years
1995-1998, inclusive of surcharges and interests, on the ground that the TCCs which Petron used to
pay its taxes were cancelled and therefore has the effect of nonpayment of taxes. The CIR also
alleged that Petron has the intent to evade its taxes, thus making the returns it filed fraudulent.

In the stipulation of facts between the parties, one of the judicial admissions was that Petron never
participated in the procurement and issuance of the TCCs to its transferors. Also, before the CTA En
Banc, it was held that Petron was an innocent purchaser in good faith and for value.

Issue: W/N the post-audit report has the effect of a suspensive condition that would determine the
validity of the TCCs
No. It is a well-settled rule in jurisprudence that TCCs are valid and effective from their issuance and
are not subject to a post-audit as a suspensive condition for their validity. Thus, Petron has the right
to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their
effectivity in the settlement of Petrons excise tax liabilities, the validity of those TCCs should not
depend on the results of the DOFs post-audit findings.
As an exception, the transferee/assignee may be held liable if proven to have been a party to the
fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. But here, the parties
entered into a joint stipulation of facts stating that Petron did not participate in the procurement or
issuance of those TCCs. Thus, the exception to the rule is not applicable as Petron was an innocent
transferee for value of the TCCs.

Issue 2: W/N the doctrine of non-applicability of estoppel to the government apply in this case
No. As a general rule, the principle of estoppel does not apply to the government, especially on
matters of taxation. Taxes are the nations lifeblood through which government agencies continue to
operate and with which the State discharges its functions for the welfare of its constituents. The
exception however is that this rule cannot be applied it if it would work injustice against an innocent
party.
Petron has not been proven to have had any participation in or knowledge of the CIRs allegation of
fraudulent transfer and utilization of the TCCs. Petrons status as an innocent purchaser for value has
been established and even stipulated upon by the CIR. Petron was thereby amply protected from the
adverse findings subsequently made by the DOF agency.

Philex Mining Corporation v CIR GR No 125704, August 28, 1998

FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex
protested the demand for payment stating that it has pending claims for VAT input credit/refund
amounting to P120 million. Therefore, these claims for tax credit/refund should be applied against the
tax liabilities. In reply the BIR found no merit in Philexs position. On appeal, the CTA reduced the tax
liability of Philex.

ISSUES:

1. Whether legal compensation can properly take place between the VAT input credit/refund and
the excise tax liabilities of
Philex Mining Corp;
 2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60
days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors
and debtors of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT
input credit. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philexs tax claim, it is a settled
rule that in the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be
stressed that the same is not a valid reason for the non-payment of its tax liabilities.

Conwi, et.al. vs. CTA and CIR

Facts: Petitioners are employees of Procter and Gamble (Philippine Manufacturing Corporation,
subsidiary of Procter & Gamble, a foreign corporation).During the years 1970 and 1971, petitioners
were assigned to other subsidiaries of Procter & Gamble outside the Philippines, for which petitioners
were paid US dollars as compensation.

Petitioners filed their ITRs for 1970 and 1971, computing tax due by applying the dollar-to-peso
conversion based on the floating rate under BIR Ruling No. 70-027. In 1973, petitioners filed amened
ITRs for 1970 and 1971, this time using the par value of the peso as basis. This resulted in the
alleged overpayments, refund and/or tax credit, for which claims for refund were filed.

CTA held that the proper conversion rate for the purpose of reporting and paying the Philippine
income tax on the dollar earnings of petitioners are the rates prescribed under Revenue
Memorandum Circulars Nos. 7-71 and 41-71. The refund claims were denied.

Issues:
(1) Whether or not petitioners' dollar earnings are receipts derived from foreign
exchange transactions; NO.

(2) Whether or not the proper rate of conversion of petitioners' dollar earnings for tax purposes in the
prevailing free market rate of exchange and not the par value of the peso; YES.

Held: For the proper resolution of income tax cases, income may be defined as an amount of money
coming to a person or corporation within a specified time, whether as payment for services, interest or
profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also
be though of as flow of the fruits of one's labor.

Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign
exchange transactions. For a foreign exchange transaction is simply that a transaction in foreign
exchange, foreign exchange being "the conversion of an amount of money or currency of one country
into an equivalent amount of money or currency of another." When petitioners were assigned to the
foreign subsidiaries of Procter & Gamble, they were earning in their assigned nation's currency and
were ALSO spending in said currency. There was no conversion, therefore, from one currency to
another.

The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter
& Gamble. It was a definite amount of money which came to them within a specified period of time of
two years as payment for their services.

And in the implementation for the proper enforcement of the National Internal Revenue Code, Section
338 thereof empowers the Secretary of Finance to "promulgate all needful rules and regulations" to
effectively enforce its provisions pursuant to this authority, Revenue Memorandum Circular Nos. 7-71
and 41-71 were issued to prescribed a uniform rate of exchange from US dollars to Philippine pesos
for INTERNAL REVENUE TAX PURPOSES for the years 1970 and 1971, respectively. Said
revenue circulars were a valid exercise of the authority given to the Secretary of Finance by the
Legislature which enacted the Internal Revenue Code. And these are presumed to be a
valid interpretation of said code until revoked by the Secretary of Finance himself.

Petitioners are citizens of the Philippines, and their income, within or without, and in these cases
wholly without, are subject to income tax. Sec. 21, NIRC, as amended, does not brook any
exemption.

DENIED FOR LACK OF MERIT.

IR vs. MARUBENI

GR No. 137377| J. Puno

Facts: CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the
1985 deficiency income, branch profit remittance and contractors taxes from Marubeni Corp after
finding the latter to have properly availed of the tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export trading, financing and
construction, is duly registered in the Philippines with Manila branch office. CIR examined the Manila
branchs books of accounts for fiscal year ending March 1985, and found that respondent had
undeclared income from contracts with NDC and Philphos for construction of a wharf/port complex
and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes.
CIR claims that the income respondent derived were income from Philippine sources, hence subject
to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review with CTA: the first,
questioned the deficiency income, branch profit remittance and contractors tax assessments and
second questioned the deficiency commercial brokers assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty
return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes under Title 3
and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986
and stated those who already availed amnesty under EO 41 should file an amended return to avail of
the new benefits. Marubeni filed a supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency
taxes. CA affirmed on appeal.
Issue: W/N Marubeni is exempted from paying tax

Held: Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception in Sec
4b of EO 41:

Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty herein
granted: xxx b) Those with income tax cases already filed in Court as of the effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a case
had already been filed and was pending before the CTA and Marubeni therefore fell under the
exception. However, the point of reference is the date of effectivity of EO 41 and that the filing of
income tax cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with CTA on
Sept 26, 1986. When EO 41 became effective, the case had not yet been filed. Marubeni does not fall
in the exception and is thus, not disqualified from availing of the amnesty under EO 41 for taxes on
income and branch profit remittance.

The difficulty herein is with respect to the contractors tax assessment (business tax) and
respondents availment of the amnesty under EO 64, which expanded EO 41s coverage. When EO
64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the amnesty for
business, estate and donors taxes. Instead, Section 8 said EO provided that:

Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be given a
retroactive effect unless it is so provided expressly or by necessary implication and no vested right or
obligations of contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the
deficiency tax because the income from the projects came from the Offshore Portion as opposed to
Onshore Portion. It claims all materials and equipment in the contract under the Offshore
Portion were manufactured and completed in Japan, not in the Philippines, and are therefore
not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and II) and
Philippine Pesos Portion and financed either by OECF or by suppliers credit. The Japanese Yen
Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine Onshore Portion. Marubeni has already paid
the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both materials and
services to the client, they are contracts for a piece of work and are indivisible. The situs of the two
projects is in the Philippines, and the materials provided and services rendered were all done and
completed within the territorial jurisdiction of the Philippines. Accordingly, respondents entire receipts
from the contracts, including its receipts from the Offshore Portion, constitute income from Philippine
sources. The total gross receipts covering both labor and materials should be subjected to
contractors tax (a tax on the exercise of a privilege of selling services or labor rather than a sale on
products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the
Philippines because some of them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for the design, fabrication, engineering
and manufacture of the materials and equipment under Japanese Yen Portion I were made and
completed in Japan. These services were rendered outside Philippines taxing jurisdiction and
are therefore not subject to contractors tax.Petition denied.

MADRIGAL VS. RAFFERTY- Difference Between Capital and Income

The essential difference between capital and income is that capital is a fund; income is a flow. A fund
of property existing at an instant of time is called capital. A flow of services rendered by that capital by
the payment of money from it or any other benefit rendered by a fund of capital in relation to such
fund through a period of time is called income. Capital is wealth, while income is the service of
wealth.

FACTS:
Vicente Madrigal and Susana Paterno were legally married prior to Januray 1, 1914. The marriage
was contracted under the provisions of law concerning conjugal partnership
On 1915, Madrigal filed a declaration of his net income for year 1914, the sum of P296,302.73
Vicente Madrigal was contending that the said declared income does not represent his income for
the year 1914 as it was the income of his conjugal partnership with Paterno. He said that in
computing for his additional income tax, the amount declared should be divided by 2.
The revenue officer was not satisfied with Madrigals explanation and ultimately, the United States
Commissioner of Internal Revenue decided against the claim of Madrigal.
Madrigal paid under protest, and the couple decided to recover the sum of P3,786.08 alleged to
have been wrongfully and illegally assessed and collected by the CIR.

ISSUE: Whether or not the income reported by Madrigal on 1915 should be divided into 2 in
computing for the additional income tax.

HELD:
No! The point of view of the CIR is that the Income Tax Law, as the name implies, taxes upon
income and not upon capital and property.
The essential difference between capital and income is that capital is a fund; income is a flow. A
fund of property existing at an instant of time is called capital. A flow of services rendered by that
capital by the payment of money from it or any other benefit rendered by a fund of capital in relation
to such fund through a period of time is called income. Capital is wealth, while income is the service
of wealth.
As Paterno has no estate and income, actually and legally vested in her and entirely distinct from
her husbands property, the income cannot properly be considered the separate income of the wife
for the purposes of the additional tax.
To recapitulate, Vicente wants to half his declared income in computing for his tax since he is
arguing that he has a conjugal partnership with his wife. However, the court ruled that the one that
should be taxed is the income which is the flow of the capital, thus it should not be divided into 2.
 National Development Company v CIR
GR No L-53961, June 30, 1987

FACTS: The National Development Company (NDC) entered into contracts in Tokyo with several
Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments
were made in cash and through irrevocable letters of credit. When the vessels were completed and
delivered to the NDC in Tokyo, the latter remitted to the shipbuilders the amount of US$ 4,066,580.70
as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held
the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed but failed. NDC
went to CTA. BIR was sustained by CTA. BIR was sustained by CTA. Hence, this petition for
certiorari.

ISSUE: Is NDC liable for the tax?

RULING: Yes. Although NDC is not the one taxed since it was the Japanese shipbuilders who were
liable on the interest remitted to them under Section 37 of the Tax Code, still, the imposition is valid.
The imposition of the deficiency taxes on NDC is a penalty for its failure to withhold the same from the
Japanese shipbuilders. Such liability is imposed by Section 53c of the Tax Code. NDC was remiss in
the discharge of its obligation as the withholding agent of the government and so should be liable for
the omission.

CIR vs. Smart Communication

FACTS: Smart Communication (Smart for brevity), is a domestic corporation and duly registered with
the Board of Investment.

Respondent Smart entered into three agreements for Programming and Consultancy Services with
PRISM Transactive, a non-resident corporation duly organized and existing under the law of
Malaysia. Under the agreement, PRISM was to provide programming and consultancy service for the
installation of SDM and CM, for the implementation of SIM.

PRISM billed respondent of US$547822.45 and respondent withheld the 25% royalty tax of
US$136,955.61.

Respondent filed a claim of refund with the BIR of the amount PhP7,008,840. Respondent claim that
it is entitled to a refund because the payment made to PRISM are not royalties but business profits
pursuant to the definition of royalties under the RP-Malaysia Tax Treaty.

ISSUE: WON the payment made to PRISM constitite "business profits" or royalties?

HELD: SDM Agreement read, "The SDM shall be installed by PRISM, inlcuding the SDM libraries, the
Intellectual Property Right (IPR) of which shall be retained by PRISM.

SIM agreement provides, " The client shall own the IPR for the specification and the source code for
the SIM application.

PRISM has intellectual property right over the SDMprogram, but not over the CM and SIM application
programs as the proprietary rights of these programs belong to respondent. In other words, out of the
payments made to PRISM, only the payment for the SDM program is a royalty subject to a 25%
withholding tax.

A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM
application agreement is therefore in order.

COMMISSIONER OF INTERNAL REVENUE VS. FILINVEST DEVELOPMENT CORPORATION-

Theoretical Interest
FACTS: Filinvest Development Corporation extended advances in favor of its affiliates and supported
the same with instructional letters and cash and journal vouchers. The BIR assessed Filinvest for
deficiency income tax by imputing an arms length interest rate on its advances to affiliates. Filinvest
disputed this by saying that the CIR lacks the authority to impute theoretical interest and that the rule
is that interests cannot be demanded in the absence of a stipulation to the effect.

ISSUE: Can the CIR impute theoretical interest on the advances made by Filinvest to its affiliates?

HELD: NO. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross
income under (now) Section 50 of the Tax Code, the same does not include the power to impute
theoretical interests even with regard to controlled taxpayers transactions. This is true even if the CIR
is able to prove that interest expense (on its own loans) was in fact claimed by the lending entity. The
term in the definition of gross income that even those income from whatever source derived is
covered still requires that there must be actual or at least probable receipt or realization of the item of
gross income sought to be apportioned, distributed, or allocated. Finally, the rule under the Civil Code
that no interest shall be due unless expressly stipulated in writing was also applied in this case.

The Court also ruled that the instructional letters, cash and journal vouchers qualify as loan
agreements that are subject to DST.

Collector of Internal Revenue vs Henderson

GR No. L-12954, 1961

FACTS: In the foregoing assessments, the Bureau of Internal Revenue considered as part of the
spouses (American Citizens) taxable income the taxpayer husbands allowances for rental, residential
expenses, water, electricity and telephone; bonus paid to him; withholding tax and entrance fee to the
Marikina Gun and Country Club paid by his employer for his account; and traveling allowance of his
wife.

ISSUE: Whether the allowances shall all be exempted from gross income?

HELD: Gross Income includes gains, profits, and income derived from salaries, wages,
or compensation for personal service whatever kind and in whatever form paid, or from
professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in such property; also from interest, rents,
dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits,
and income derived from any source whatever.
Their bills for rental and utilities were paid directly by the employer-corporation to the creditors.
Nevertheless, as correctly held by the Court of Tax Appeals, the taxpayers are entitled only to a
ratable value of the allowances in question, and only the amount of P4,800.00 annually, the
reasonable amount they have spent for home rental and utilities such as light, water, telephone, etc.,
should be the amount subject to tax, and the excess considered as expenses of the corporation.

CIR V CA January 20, 1999

Facts: Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States,
formed the corporation A. Soriano Y Cia, predecessor of ANSCOR with a 1,000,000.00
capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly
owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937, Don
Andres subscribed to 4,963 shares of the 5,000 shares originally issued.

On September 12, 1945, ANSCORs authorized capital stock was increased to P2,500,000.00 divided
into 25,000 common shares with the same par value. Of the additional 15,000 shares, only 10,000
was issued which were all subscribed by Don Andres, after the other stockholders waived in favor of
the former their pre-emptive rights to subscribe to the new issues. This increased his subscription to
14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons,
Jose and Andres Jr., as their initial investments in ANSCOR. Both sons areforeigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between
1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records
revealed that he has a total shareholdings of 185,154 shares. 50,495 of which are original issues and
the balance of 134,659 shares as stockdividend declarations. Correspondingly, one-half of that
shareholdings or 92,577 shares were transferred to his wife, Doa Carmen Soriano, as
herconjugal share. The offer half formed part of his estate.
A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and 46,287
shares were respectively received by the Don Andres estate and Doa Carmen from ANSCOR.
Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.

On December 28, 1967, Doa Carmen requested a ruling from the United States Internal Revenue
Service (IRS), inquiring if an exchange of common with preferred shares may be considered as a tax
avoidance scheme. By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares
into 150,000 common and 150,000 preferred shares.
In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization
scheme and not tax avoidance. Consequently, on March 31, 1968 Doa Carmen exchanged her
whole 138,864 common shares for 138,860 of the preferred shares. The estate of Don Andres in turn
exchanged 11,140 of its common shares for the remaining 11,140 preferred shares.

In 1973, after examining ANSCORs books of account and record Revenueexaminers issued a report
proposing that ANSCOR be assessed fordeficiency withholding tax-at-source, for the year 1968 and
the 2nd quarter of 1969 based on the transaction of exchange and redemption of stocks. BIR made
the corresponding assessments. ANSCORs subsequent protest on the assessments was denied in
1983 by petitioner. ANSCOR filed a petition for review with the CTA, the Tax Court reversed
petitioners ruling. CA affirmed the ruling of the CTA. Hence this position.
Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the
Tax Code is being held liable in its capacity as a withholding agent.
Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by
petitioner for deficiency withholding tax, as such, it is being held liable in its capacity as a withholding
agent and not in its personality as taxpayer. A withholding agent, A. Soriano Corp. in this case,
cannot be deemed a taxpayer for it to avail of a tax amnesty under a Presidential decree
that condones the collection of all internal revenue taxes including the increments or penalties on
account of non-payment as well as all civil, criminal, or administrative liabilities arising from or incident
to voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical. The Court explains: The withholding agent is not a
taxpayer, he is a mere tax collector. Under the withholding system, however, the agent-payer
becomes a payee by fiction of law. His liability is direct and independent from the taxpayer, because
the income tax is still imposed and due from the latter. The agent is not liable for the tax as no wealth
flowed into him, he earned no income.

SUPREME TRANSLINER, INC. VS. BPI FAMILY SAVINGS BANK, INC

G.R. No. 165837, February 25, 2011

FACTS: Supreme Transliner took out a loan from respondent and was unable to pay. The respondent
bank extrajudicially foreclosed the collateral and, before the expiration of the one-year redemption
period, the mortgagors notified the bank of its intention to redeem the property.

ISSUE: Is the mortgagee-bank liable to pay the capital gains tax upon the execution of the certificate
of sale and before the expiry of the redemption period?

HELD: NO. It is clear that in foreclosure sale there is no actual transfer of the mortgaged real
property until after the expiration of the one-year period and title is consolidated in the name of the
mortgagee in case of non-redemption. This is because before the period expires there is yet no
transfer of title and no profit or gain is realized by the mortgagor.

Baas Jr. v. Court of Appeals

[G.R. No. 102967. February 10, 2000]

FACTS: Petitioner entered into a deed of sale purportedly on installment. He discounted the
promissory note covering the future installments for purposes of taxation.

ISSUE: Whether or not the promissory note should be declared cash transaction for purposes of
taxation.

RULING: YES. A negotiable instrument is deemed a substitute for money and for value. According to
Sec. 25 of NIL: value is any consideration sufficient to support a simple contract. An antecedent or
pre-existing debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time. Although the proceed of a discounted promissory note is not considered
part of the initial payment, it is still taxable income for the year it was converted into cash.

Carlos Superdrug Corp. v. DSWD

526 SCRA 130 (2007)

Facts: Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Petitioners assail the constitutionality of Section 4(a) of RA 9257, otherwise known as the Expanded
Senior Citizens Act of 2003. Section 4(a) of RA 9257grants twenty percent (20%) discount as
privileges for the Senior Citizens. Petitioner contends that said law is unconstitutional because it
constitutes deprivation of private property.

Issue: Whether or not RA 9257 is unconstitutional

Held: Petition is dismissed. The law is a legitimate exercise of police power which, similar to the
power of eminent domain, has general welfare for its object.

Accordingly, it has been described as the most essential, insistentand the least limitable of powers,
extending as it does to all the greatpublic needs. It is the power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes,
and ordinances, either with penaltiesor without, not repugnant to the constitution, as they shall judge
to be for the good and welfare of the commonwealth, and of the subjects of the same.

For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due process,
must yield to general welfare.

CIR V. Isabela Cultural Corp. (2007)

G.R. No. 172231 February 12, 2007

Lessons Applicable: Accrual method, burden of proof in accrual method, deductibility of ordinary and
necessary trade, business, or professional expenses, all events test

FACTS:

BIR disallowed Isabela Cultural Corp. deductible expenses for services which were rendered in
1984 and 1985 but only billed, paid and claimed as a deduction on 1986.
After CA sent its demand letters, Isabela protested.
CTA found it proper to be claimed in 1986 and affirmed by CA

ISSUE: W/N Isabela who uses accrual method can claim on 1986 only

HELD: case is remanded to the BIR for the computation of Isabela Cultural Corporations liability
under Assessment Notice No. FAS-1-86-90-000680.

NO

The requisites for the deductibility of ordinary and necessary trade, business, or professional
expenses, like expenses paid for legal and auditing services, are:
(a) the expense must be ordinary and necessary;
 (b) it must have been paid or incurred during the taxable year; - qualified by Section 45 of the
National Internal Revenue Code (NIRC) which states that: "[t]he deduction provided for in this Title
shall be taken for the taxable year in which paid or accrued or paid or incurred, dependent upon
the method of accounting upon the basis of which the net income is computed
(c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and
(d) it must be supported by receipts, records or other pertinent papers.
Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of
accounting, expenses not being claimed as deductions by a taxpayer in the current year when
they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a
taxpayer who is authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.
The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay
them, in opposition to actual receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to receive them become fixed, where there
is created an enforceable liability. Similarly, liabilities are accrued when fixed and determinable in
amount, without regard to indeterminacy merely of time of payment.
The accrual of income and expense is permitted when the all-events test has been met. This test
requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable
accurate determination of such income or liability.
The all-events test requires the right to income or liability be fixed, and the amount of such income
or liability be determined with reasonable accuracy. However, the test does not demand that the
amount of income or liability be known absolutely, only that a taxpayer has at his disposal the
information necessary to compute the amount with reasonable accuracy. The all-events test is
satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied
where a computation may be unknown, but is not as much as unknowable, within the taxable
year. The amount of liability does not have to be determined exactly; it must be determined with
"reasonable accuracy." Accordingly, the term "reasonable accuracy" implies something less than
an exact or completely accurate amount.
The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably
be expected to have known, at the closing of its books for the taxable year.
Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the
burden of proof of establishing the accrual of an item of income or deduction.
In the instant case, the expenses for professional fees consist of expenses for legal and auditing
services. The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of
the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement
of the expenses of said firm in connection with ICCs tax problems for the year 1984. As testified
by the Treasurer of ICC, the firm has been its counsel since the 1960s. - failed to prove the
burden.

CIR V GENERAL FOODS

GR No. 143672| April 24, 2003 | J. Corona

Test of Reasonableness

Facts: Respondent corporation General Foods (Phils), which is engaged in the manufacture of
Tang, Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February 1985
and claimed as deduction, among other business expenses, P9,461,246 for media advertising for
Tang. The Commissioner disallowed 50% of the deduction claimed and assessed deficiency income
taxes of P2,635,141.42 against General Foods, prompting the latter to file an MR which was denied.
General Foods later on filed a petition for review at CA, which reversed and set aside an earlier
decision by CTA dismissing the companys appeal.

Issue: W/N the subject media advertising expense for Tang was ordinary and necessary expense
fully deductible under the NIRC

Held: No. Tax exemptions must be construed in stricissimi juris against the taxpayer and liberally in
favor of the taxing authority, and he who claims an exemption must be able to justify his claim by the
clearest grant of organic or statute law. Deductions for income taxes partake of the nature of tax
exemptions; hence, if tax exemptions are strictly construed, then deductions must also be strictly
construed.
To be deductible from gross income, the subject advertising expense must comply with the following
requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred
during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of
the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers.

While the subject advertising expense was paid or incurred within the corresponding taxable year and
was incurred in carrying on a trade or business, hence necessary, the parties views conflict as to
whether or not it was ordinary. To be deductible, an advertising expense should not only be
necessary but also ordinary.

The Commissioner maintains that the subject advertising expense was not ordinary on the ground
that it failed the two conditions set by U.S. jurisprudence: first, reasonableness of the amount
incurred and second, the amount incurred must not be a capital outlay to create goodwill for the
product and/or private respondents business. Otherwise, the expense must be considered a capital
expenditure to be spread out over a reasonable time.

There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an advertising
expense. There being no hard and fast rule on the matter, the right to a deduction depends on a
number of factors such as but not limited to: the type and size of business in which the taxpayer is
engaged; the volume and amount of its net earnings; the nature of the expenditure itself; the intention
of the taxpayer and the general economic conditions. It is the interplay of these, among other factors
and properly weighed, that will yield a proper evaluation.

The Court finds the subject expense for the advertisement of a single product to be inordinately large.
Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible under then
Section 29 (a) (1) (A) of the NIRC.

Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or
use of services and (2) advertising designed to stimulate the future sale of merchandise or use of
services. The second type involves expenditures incurred, in whole or in part, to create or maintain
some form of goodwill for the taxpayers trade or business or for the industry or profession of which
the taxpayer is a member. If the expenditures are for the advertising of the first kind, then, except as
to the question of the reasonableness of amount, there is no doubt such expenditures are deductible
as business expenses. If, however, the expenditures are for advertising of the second kind, then
normally they should be spread out over a reasonable period of time.
The companys media advertising expense for the promotion of a single product is doubtlessly
unreasonable considering it comprises almost one-half of the companys entire claim for marketing
expenses for that year under review. Petition granted, judgment reversed and set aside.
 C. M. Hoskins & Co. Inc. v Commissioner of Internal Revenue

Facts: Hoskins, a domestic corporation engaged in the real estate business as broker, managing
agents and administrators, filed its income tax return (ITR) showing a net income of P92,540.25 and a
tax liability of P18,508 which it paid.

CIR disallowed 4 items of deductions in the ITR. Court of Tax Appeals upheld the disallowance of an
item which was paid to Mr. C. Hoskins representing 50% of supervision fees earned and set aside the
disallowance of the other 3 items.

Issue: Whether or not the disallowance of the 4 items were proper.

Held: NOT deductible. It did not pass the test of reasonableness which is:
General rule, bonuses to employees made in good faith and as additional compensation for services
actually rendered by the employees are deductible, provided such payments, when added to the
salaries do not exceed the compensation for services rendered.

The conditions precedent to the deduction of bonuses to employees are:

Payment of bonuses is in fact compensation
Must be for personal services actually rendered
Bonuses when added to salaries are reasonable when measured by the amount and
quality of services performed with relation to the business of the particular taxpayer.
There is no fixed test for determining the reasonableness of a given bonus as compensation. This
depends upon many factors.

In the case, Hoskins fails to pass the test. CTA was correct in holding that the payment of the
company to Mr. Hoskins of the sum P99,977.91 as 50% share of supervision fees received by the
company was inordinately large and could not be treated as an ordinary and necessary expenses
allowed for deduction.

Gancayco vs.Collector

FACTS: Gancyaco files his income tax return for the year 1949. Respondent issued a warrant of
distraint and levy against the properties of Gancayco for the satisfaction of his deficiency income tax
liability, and accordingly, the municipal treasurer issued a notice of sale of said property at public
auction. Gancayco filed a petition to cancel the sale and direct that the same be re-advertised at a
future date.

ISSUE: Whether the sum of PhP 16,860.31 is due from Gancayco as deficiency income tax for 1949
hinges on the validity of his claim for deduction:
a) farming expense PhP 27,459
b) representation expenses PhP 8,933.45

HELD:

a) Farming Expenses - no evidence has been presnted as to the nature of the said farming
expenses other than the care statement of petitioner that they were spent for the development and
cultivation of his property.

No specification has been made as to the actual amount spent for purchase of tools, equipment or
materials or the amount spent for improvement.
b) Representation expense
PhP 22, 820 is allowed

PhP 8,993.45 is disallowed because of the absence of recipt, invoices or vouchers of the
expenditures in question, petitioner could not sspecify the items constituting the same when or on
whom or on what they were incurred.

TAMBUNTING PAWNSHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE.

G.R. No. 179085. January 21, 2010

FACTS: Petitioner was issued an assessment for deficiency VAT for the taxable year of 1999.
Petitioner, after his protest with the CIR merited no response, it filed a Petition for Review with the
CTA raising that pawnshops are not subject to VAT under the NIRC and that pawn tickers are not
subject to documentary stamp tax.
The CTA ruled that petitioner is liable for the deficiency VAT and the documentary stamp tax.
The petitioner argues that a pawnshop is not enumerated as one of those engaged in sale or
exchange of services in Section 108 of the National Internal Revenue Code and citing the case
of Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops, Inc. as basis.
ISSUE: Whether petitioner is liable for the deficiency VAT.
Whether the petitioner is liable for the documentary stamp tax.

RULING:
YES. The Court cited the case of First Planters Pawnshop, Inc. v. Commissioner of Internal
Revenue. In the foregoing case, since the imposition of VAT on pawnshops, which are non-bank
financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT
for the tax year 1999.
NO. Sections 195 of the NIRC provides that on the pledge of personal property, there shall be
collected a documentary stamp tax. The Court held in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue that the documentary stamp tax is an excise tax on the exercise of
a right or privilege and that pledge is among the privileges, the exercise of which is subject to
documentary stamp taxes. For purposes of taxation, pawn tickets are proof of an exercise of a
taxable privilege of concluding a contract of pledge.

Philex Mining Corporation v CIR

GR No 125704, August 28, 1998

FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex
protested the demand for payment stating that it has pending claims for VAT input credit/refund
amounting to P120 million. Therefore, these claims for tax credit/refund should be applied against the
tax liabilities.

In reply the BIR found no merit in Philexs position. On appeal, the CTA reduced the tax liability of
Philex.
ISSUES:

1. Whether legal compensation can properly take place between the VAT input credit/refund and
the excise tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60
days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors
and debtors of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT
input credit. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philexs tax claim, it is a settled
rule that in the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be
stressed that the same is not a valid reason for the non-payment of its tax liabilities.

CIR vs. Itogon Suyoc Mines

G.R. No. L-25299, July 29, 1969

FACTS: Respondent Itogon-Suyoc Mines, a mining corporation duly organized and existing under
Philippine laws fild its income tax return.

Fiscal year (1956-1960) paid PhP 13, 155.20 as the first installment of the income tax due. Then filed
an amended income tax return reporting a net loss of PhP 331,707.33

Fiscal year (1960-1961) setting forth its income tax liability of PhP 97.345 but deducting the amount
of PhP 13,155.20 representing alleged tax credit for over-payment of the preceding fiscal year 1959-
1960.

Petitioner assessed against the respondent the amount of PhP 1,512.83 as 1% monthly interest. The
basis for such an assessment was the absence of legal right to deduct said amount before the refund
or tax credit thereof was approved by petitioner CIR.

ISSUE: WON respondent corporation is liable to pay the sum of PhP1,512.83 as 1% monthly interest
for delinquency in the payment of income tax.?

HELD: NIRC provides that interest upon the amount determined as a deficiency shall be assessed
and shall be paid upon notice and demand from the CIR at the specified. If in any preceding year the
tax payer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, maybe
deducted from the tax to be paid.
 PICOP VS CIR
G.R. Nos. 106949-50 December 1, 1995

FACTS: Paper Industries Corporation of the Philippines (PICOP) is a Philippine Corporation

registered with Board of Investment (BOI) as preferred pioneer enterprise with respect to its
integrated pulp and paper mill, and as preferred non-pioneer enterprise with respect to its integrated
plywood and veneer mills.

PICOP received from CIR two (2) letters of assessment (a) for deficiency transaction tax and for
documentary and science stamp tax (b) deficiency income tax for 1977.

PICOP maintains that it is not liable at all to pay any of the assessments or any part thereof. PICOP
questions the imposition by the CA of the deficiency income tax resulting from disallowance of certain
claimed financial guarantee expense and claimed year-end adjustment of sales and cost of sales.

ISSUE: Whether PICOP is liable for: (1) the 35% transaction; (2) interest and surcharge on unpaid
transaction tax.

HELD: PICOP is liable for the 35% transaction tax due in respect of interest payments on its money
market borrowings.

The transaction tax maybe levied only in respect of the interest earnings of PICOP money market
lenders accruing after PD No. 1154 went into effect, and not in respect of all the 1977 interest earning
of such lenders.

Filinvest Development Corporation vs. CIR

G.R. No. 146941, Aug. 9, 2007

FACTS: Filinvest filed a claim for refund, or in the alternative, the issuance of TCC with CIR in the
amount of P4,178,134.00 representing excess creditable withholding taxes for taxable years 1994,
1995, and 1996.

When CIR had not resolved petitioners claim for refund and the 2-yr prescriptive period was about to
lapse, the latter filed a Petition for Review with the CTA, which, however, dismissed the petition for
review for insufficiency of evidence because petitioner failed to present in evidence its 1997 income
tax return. CA also denied the petition for review subsequently filed on the same ground of
insufficiency of evidence.

ISSUE: Whether or not petitioner is entitled to the tax refund or tax credit

HELD: Petitioner is entitled to the tax refund or tax credit.

Factual findings of the CTA, as affirmed by the CA, are entitled to the highest respect and will not be
disturbed on appeal unless it is shown that the lower courts committed gross error in the appreciation
of facts.

The appellate court itself acknowledges that petitioner had complied with the requirements to sustain
a claim for tax refund or credit. In the light of RA 1125, as amended, the law creating the CTA,
provides that proceedings therein shall not be governed strictly by technical rules of evidence.
Moreover, this Court has held time and again that technicalities should not be used to defeat
substantive rights, especially those that have been established as a matter of fact.
The CA, likewise, erred in relying on CTA decisions as jurisprudential basis for its decision. By
tradition and in our system of judicial administration this Court has the last word on what the law is,
and that its decisions applying or interpreting the laws or the Constitution form part of the legal
system of the country, all other courts should take their bearings from the decisions of this Court, ever
mindful of what this Court said fifty-seven years ago in People vs. Vera that a becoming modesty of
inferior courts demands conscious realization of the position that they occupy in the interrelation and
operation of the integrated judicial system of the nation.

The principle of stare decisis et non quieta movere, enjoins adherence to judicial precedents. It
requires our courts to follow a rule already established in a final decision of the Supreme Court. That
decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land.

In ruling the case, the Court adopted its own ruling in BPI-Family Savings Bank vs. Court of Appeals.

Lorenzo Oa VS CIR
GR No. L -19342 | May 25, 1972 | J. Barredo

Facts: Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five children. A
civil case was instituted for the settlement of her state, in which Oa was appointed administrator and
later on the guardian of the three heirs who were still minors when the project for partition was
approved. This shows that the heirs have undivided interest in 10 parcels of land, 6 houses and
money from the War Damage Commission.
Although the project of partition was approved by the Court, no attempt was made to divide the
properties and they remained under the management of Oa who used said properties in business by
leasing or selling them and investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners properties and investments gradually
increased. Petitioners returned for income tax purposes their shares in the net income but they did
not actually receive their shares because this left with Oa who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition for review from CTAs decision.

Issue:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax

Held:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition, the heirs allowed their properties to
remain under the management of Oa and let him use their shares as part of the common fund for
their ventures, even as they paid corresponding income taxes on their respective shares.

Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.
The reason is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If after such partition, he allows his
share to be held in common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership is
formed.

For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships

The term partnership includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried
on (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
with the exception only of duly registered general copartnerships within the purview of the term
corporation. It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar
as said Code is concerned, and are subject to the income tax for corporations. Judgment affirmed.

Pascual and Dragon v. CIR

G.R. No. 78133, October 18, 1988

FACTS: Petitioners bought two (2) parcels of land and a year after, they bought another three (3)
parcels of land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized net profits.
The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years. However, the Acting BIR Commissioner assessed and
required Petitioners to pay a total amount of P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they had
availed of tax amnesties way back in 1974. In a reply, respondent Commissioner informed petitioners
that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income
was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code
that the unregistered partnership was subject to corporate income tax as distinguished from profits
derived from the partnership by them which is subject to individual income tax; and that the availment
of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual
income tax liabilities but did not relieve them from the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the deficiency income tax assessed.

ISSUE: Whether the Petitioners should be treated as an unregistered partnership or a co-ownership

for the purposes of income tax.

RULING: The Petitioners are simply under the regime of co-ownership and not under
unregistered partnership. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves (Art. 1767, Civil Code of the Philippines). In the present case, there is no evidence
that petitioners entered into an agreement to contribute money, property or industry to a common
fund, and that they intended to divide the profits among themselves. The sharing of returns does not
in itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. There must be a clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and the freedom of each party to transfer or
assign the whole property. Hence, there is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and
availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have
formed an unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.

Obillos v. CIR
G.R. L-68118

Facts: In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The
next day, he transferred his rights to his four children for them to build their own residences. The
Torrens title would show that they were co-owners of the two lots. However, the petitioners resold
them to Walled City Securities Corporation and Olga Cruz Canda for P313k or P33k for each of
them. They treated the profit as capital gains and paid an income tax of P16,792.00

The CIR requested the petitioners to pay the corporate income tax of their shares, as this entire
assessment is based on the alleged partnership under Article 1767 of the Civil Code; simply because
they contributed each to buy the lots, resold them and divided the profits among them.

But as testified by Obillos, they have no intention to form the partnership and that it was merely
incidental since they sold the said lots due to high demand of construction. Naturally, when they sell
them as co-partners, it will result to the share of profits. Further, their intention was to divide the lots
for residential purposes.

Issue: Was there a partnership, hence, they are subject to corporate income taxes?

Court Ruling: Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of gross
returns does not in itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived. There must be an
unmistakeable intention to form a partnership or joint venture.

In this case, the Commissioner should have investigated if the father paid donor's tax to
establish the fact that there was really no partnership.

AFISCO INSURANCE CORP. et al. vs. COURT OF APPEALS

[G.R. No. 112675. January 25, 1999]
DOCTRINE: Unregistered Partnerships and associations are considered as corporations for tax
purposes Under the old internal revenue code, A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or organized, xxx. Ineludibly,
the Philippine legislature included in the concept of corporations those entities that resembled them
such as unregistered partnerships and associations.

Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation In
the case at bar, petitioners-insurance companies formed a Pool Agreement, or an association that
would handle all the insurance businesses covered under their quota-share reinsurance treaty and
surplus reinsurance treaty with Munich is considered a partnership or association which may be taxed
as a ccorporation.

Double Taxation is not Present in the Case at Bar Double taxation means taxing the same person
twice by the same jurisdiction for the same thing. In the instant case, the insurance pool is a taxable
entity distince from the individual corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the companies. There is no double
taxation.

FACTS: The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance
policies for machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and
a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter
called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required
petitioners to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for 1975. On the basis of this, the CIR assessed a
deficiency of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68
on dividends paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their
appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation, and
that the latters collection of premiums on behalf of its members, the ceding companies, was taxable
income.

ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.

HELD:

1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them individually and separately,
and that their liability was limited to the extent of their allocated share in the original risks thus
reinsured. Hence, the pool did not act or earn income as a reinsurer. Its role was limited to its
principal function of allocating and distributing the risk(s) arising from the original insurance among
the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection
and custody of funds, etc.

Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby
imposed upon the taxable net income received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter how created or
organized, but not including duly registered general co-partnership (compaias colectivas), general
professional partnerships, private educational institutions, and building and loan associations xxx.
 Ineludibly, the Philippine legislature included in the concept of corporations those entities that
resembled them such as unregistered partnerships and associations. Interestingly, the NIRCs
inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of
1997 Sec. 27 read together with Sec. 22 reads:

SEC. 27. Rates of Income Tax on Domestic Corporations. --

(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent
(35%) is hereby imposed upon the taxable income derived during each taxable year from all sources
within and without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and
taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participacion), associations, or insurance companies,
but does not include general professional partnerships [or] a joint venture or consortium formed for
the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating or consortium agreement under a service contract
without the Government. General professional partnerships are partnerships formed by persons
for the sole purpose of exercising their common profession, no part of the income of which is derived
from engaging in any trade or business.

Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these
unregistered partnerships and even associations or joint accounts, which had no legal personalities
apart from their individual members.

Furthermore, Pool Agreement or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may
be considered a partnership because it contains the following elements: (1) The pool has a common
fund, consisting of money and other valuables that are deposited in the name and credit of the pool.
This common fund pays for the administration and operation expenses of the pool. (2) The pool
functions through an executive board, which resembles the board of directors of a corporation,
composed of one representative for each of the ceding companies. (3) While, the pool itself is not a
reinsurer and does not issue any policies; its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because without it they would not have
received their premiums pursuant to the agreement with Munich. Profit motive or business is,
therefore, the primordial reason for the pools formation.

2) No: There is no double taxation.

Argument of Petitioner: Remittances of the pool to the ceding companies and Munich are not
dividends subject to tax. Imposing a tax would be tantamount to an illegal double taxation, as it
would result in taxing the same premium income twice in the hands of the same taxpayer.
Furthermore, even if such remittances were treated as dividends, they would have been exempt
under tSections 24 (b) (I) and 263 of the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5
of paragraph 5 of the RP-West German Tax Treaty.

Argument of Supreme Court: Double taxation means taxing the same person twice by the same
jurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity distince from
the individual corporate entities of the ceding companies. The tax on its income is obviously different
from the tax on the dividends received by the companies. There is no double taxation.
Tax exemption cannot be claimed by non-resident foreign insurance corporattion; tax exemption
construed strictly against the taxpayer - Section 24 (b) (1) pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding companies which are domestic corporations. Nor can
Munich, a foreign corporation, be granted exemption based solely on this provision of the Tax Code
because the same subsection specifically taxes dividends, the type of remittances forwarded to it by
the pool. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
exemption must be construed strictissimi juris, and the statutory exemption claimed must be
expressed in a language too plain to be mistaken.

Evangelista vs. Collector of Internal Revenue

G.R. No. L-9996 October 15, 1957

Facts: Petitioners borrowed money from their father and purchased several lands. For several years,
these lands were leased to tenants by the petitioners. In 1954, respondent Collector of Internal
Revenuedemanded from petitioners the payment of income tax on corporations, real estate dealer's
fixed tax and corporation residence tax for the years 1945-1949. A letter of demand and
corresponding assessments were delivered to petitioners. Petitioners claim that they should be
absolved from paying said taxes since they are not a corporation.

Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.

Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.

As defined in section 84 (b) of the Internal Revenue Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that
a joint venture need not be undertaken in any of the standard forms, or in conformity with the
usual requirements of the law on partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Partnership, as has been defined in the civil code refers to two or
more persons who bind themselves to contribute money, properly, or industry to a common fund, with
the intention of dividing the profits among themselves. Thus, petitioners, being engaged in the real
estate transactions for monetary gain and dividing the same among themselves constitute
a partnership so far as the Code is concerned and are subject to income tax for corporation.

Since Sec 2 of the Code in defining corporations also includes joint-stock company, partnership, joint
account, association or insurance company, no matter how created or organized, it follows that
petitioners, regardless of how their partnership was created is also subject to the residence tax for
corporations.
 Manila Bank v. CIR (2006)
G.R. No. 168118 August 28, 2006
SANDOVAL-GUTIERREZ, J.

Lessons Applicable: 4-year grace period is based on the registration and commencement (not only
for newly formed corporation), MCIT law encourages new business

FACTS:

Manila Bank, after 12 years of being prohibited to operate due to insolvency by the Monetary
Board of the BSP, is granted to operate as a thrift bank.
It paid its taxed for 1999.
Then, it asked the BIR whether it is entitled to the 4-year grace period before it shall be subject to
MCIT.
BIR confirmed its entitlement.
It filed a claim for refund erroneously paid as MCIT in 1999.
Due to inaction, it filed a Petition for Review with the CTA who denied it since it is not a new
corporation and has continued its registration with the SEC and BIR.

ISSUE: W/N Manila Bank is entitled to a 4-year grace period.

HELD: Yes. GRANT the petition.

The intent of the Congress relative to the MCIT is to grant 4-year grace period so that newly
formed corporate can stabilize itself in order to obtain a stronghold in the industry.
Rev. Reg. No. 4-95 clearly provides that the date of commencement of the operations of a thrift
bank is the date that it was registered with the SEC or the date when the certificate of authority to
operate was issued by the Monetary Board of the BSP, whichever comes later.
Rev. Reg. No. 4-98, implementing RA 8424 imposing MCIT provides for purposes of this tax, date
when business operations commence is the year which the company is registered with the BIR,
thus in this case only on June 23, 1999

CIR vs. PHILIPPINE AIRLINES, INC. - Minimum Corporate Income Tax

FACTS: PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been liable
for Minimum Corporate Income Tax based on its gross income. However, PHILIPPINE AIRLINES,
INC. did not pay the Minimum Corporate Income Tax using as basis its franchise which exempts it
from all other taxes upon payment of whichever is lower of either (a) the basic corporate income tax
based on the net taxable income or (b) a franchise tax of 2%.

ISSUE: Is PAL liable for Minimum Corporate Income Tax?

HELD: NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income tax"
which refers to the general rate of 35% (now 30%). In addition, there is an apparent distinction under
the Tax Code between taxable income, which is the basis for basic corporate income tax under Sec.
27 (A) and gross income, which is the basis for the Minimum Corporate Income Tax under Section 27
(E). The two terms have their respective technical meanings and cannot be used interchangeably.
Not being covered by the Charter which makes PAL liable only for basic corporate income tax, then
Minimum Corporate Income Tax is included in "all other taxes" from which PHILIPPINE AIRLINES,
INC. is exempted.

The CIR also can not point to the Substitution Theory which states that Respondent may not invoke
the in lieu of all other taxes provision if it did not pay anything at all as basic corporate income tax or
franchise tax. The Court ruled that it is not the fact tax payment that exempts Respondent but the
exercise of its option. The Court even pointed out the fallacy of the argument in that a measly sum of
one peso would suffice to exempt PAL from other taxes while a zero liability would not and said that
there is really no substantial distinction between a zero tax and a one-peso tax liability. Lastly, the
Revenue Memorandum Circular stating the applicability of the MCIT to PAL does more than just
clarify a previous regulation and goes beyond mere internal administration and thus cannot be given
effect without previous notice or publication to those who will be affected thereby.

CYANAMID PHIL., INC. V CA GR No. 108067, January 20, 2000

Facts: Petitioner, Cyanamid Philippines, Inc., a corporation organized under Philippine laws, is a
wholly owned subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the
manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods, and
an importer/indenter.

February 7, 1985, the CIR sent an assessment letter to petitioner and demanded the payment of
deficiency in come tax of P119,817 for taxable year 1981 which the petitioner on March 4, 1985,
protested particularly (1) 25% surtax assessment of P3,774,867.50; (2) 1981 deficiency income tax
assessment of P119,817; (3) 1981 deficiency percentage assessment of P3,346.72. CIR refused to
allow the cancellation of the assessment notices.

During the pendency of the case on appeal to the CTA, both parties agreed to compromise the 1981
deficiency income assessment of P119,817 and reduced to P26,577 as compromise settlement. But
the surtax on improperly accumulated profits remained unresolved. Petitioner claimed that the
assessment representing the 25% surtax had no legal basis for the following reasons: (a) petitioner
accumulated its earnings and profits for reasonable business requirements to meet working capital
needs and retirement of indebtedness, (b) petitioner is wholly owned subsidiary of American
Cyanamid Co., a corporation organized under the laws of the State of Maine, in the USA, whose
shares of stock are listed and traded in New York Stock Exchange. This being the case, no individual
shareholder of petitioner could have evaded or prevented the imposition of individual income taxes by
petitioners accumulation of earnings and profits, instead contribution of the same.

CTA denied said petition.

Issue: Whether petitioner is liable for the accumulated earnings tax for the year 1981.

Held: The amendatory provision of Sec. 25 of the 1977 NIRC, which was PD1739, enumerated the
corporations exempt from the imposition of improperly accumulated tax: (a) banks, (b) non-bank
financial intermediaries; (c) insurance companies; and (d) corporations organized primarily and
authorized by the Central Bank to hold shares of stocks of banks. Petitioner does not fall among
those exempt classes. Besides, the laws granting exemption form tax are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception. The burden of proof rests upon the party claiming the exemption to prove that it is, in
fact, covered by the exemption so claimed; a burden which petitioner here has failed to discharge.

Unless rebutted, all presumptions generally are indulged in favor of the correctness of the CIRs
assessment against the taxpayer. With petitioners failure to prove the CIR incorrect, clearly and
conclusively, this court is constrained to uphold the correctness of tax courts ruling as affirmed by the
CA.

PHILIPPINE AMUSEMENT AND GAMING CORPORATION VS. BUREAU OF INTERNAL

REVENUE

ISSUE: Is Republic Act 9337 constitutional insofar as it excluded PAGCOR from the enumeration of
GOCCs exempt from the payment of corporate income tax?

HELD: YES. The original exemption of PAGCOR from corporate income tax was not made pursuant
to a valid classification based on substantial distinctions so that the law may operate only on some
and not on all. Instead, the same was merely granted due to the acquiescence of the House
Committee on Ways and Means to the request of PAGCOR.

The argument that the withdrawal of the exemption also violates the non-impairment clause will not
hold since any franchise is subject to amendment, alteration or repeal by Congress.

However, the Court made it clear that PAGCOR remains exempt from payment of indirect taxes and
as such its purchases remain not subject to VAT, reiterating the rule laid down in the Acesite case.

COMMISSIONER vs. BOAC

149 SCRA 395
GR No. L-65773-74 April 30, 1987

"The source of an income is the property, activity or service that produced the income. For such
source to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of
deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the
fiscal years 1959 to 1971. BOAC is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom, and is engaged in the international airline business.
During the periods covered by the disputed assessments, it is admitted that BOAC had no landing
rights for traffic purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to
or from the Philippines, although during the period covered by the assessments, it maintained a
general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas
Airways which was responsible for selling BOAC tickets covering passengers and cargoes. The
CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC
income from Philippine sources since no service of carriage of passengers or freight was performed
by BOAC within the Philippines and, therefore, said income is not subject to Philippine income tax.
The CTA position was that income from transportation is income from services so that the place
where services are rendered determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no
landing rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income.
For the source of income to be considered as coming from the Philippines, it is sufficient that the
income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The tickets exchanged hands here and payments
for fares were also made here in Philippine currency. The site of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.

South African Airways v. CIR

G.R. No. 180356 February 16, 2010

Lessons Applicable: Taxes can be offset if intimately related, unless exempted assumed within the
purview of general rule, liabilities and tax credit must first be determined before offset can take place

Facts:

South African Airways, a foreign corporation with no license to do business in the Philippines,
sells passage documents for off-line flights through Aerotel Limited, general sales agent in the
Philippines
Feb 5, 2003: Petitioner filed a claim for refund erroneously paid tax on Gross Philippine Billing
(GPB) for the year 2010.
CTA: denied - petitioner is a resident foreign corp. engaged in trade or business in the Philippines
and therefore is NOT liable to pay tax on GPB under the Sec. 28 (A) (3) (a) of the 1997 NIRC but
cannot be allowed refund because liable for the 32% income tax from its sales of passage
documents.
This is upheld by the CTA and CTA En Banc

Issue:
1. W/N petitioner is engaged in trade or business in the Philippines is subject to 32% income tax.
2. W/N petitioner is entitled to refund

HELD: CTA En Banc decision is set side

1. Yes. Since it does not maintain flights to or from the Philippines, it is not taxable under Sec.
28(A)(3)(a) of the 1997 NIRC. This much was also found by the CTA. But petitioner further posits the
view that due to the non-applicability of Sec. 28(A)(3)(a) to it, it is precluded from paying any other
income tax for its sale of passage documents in the Philippines. But, Sec. 28 (A)(1) of the 1997 NIRC
does not exempt all international air carriers from the coverage of Sec. 28 (A) (1) of the 1997 NIRC
being a general rule. Petitioner, being an international carrier with no flights originating from the
Philippines, does not fall under the exception. As such, petitioner must fall under the general rule.
This principle is embodied in the Latin maxim, exception firmat regulam in casibus non exceptis,
which means, a thing not being excepted must be regarded as coming within the purview of the
general rule.

2. Underterminable. Although offsetting of tax refund with tax deficiency is unavailing under Art. 1279
of the Civil Code, in CIR v. CTA it granted when deficiency assessment is intimately related and
inextricably intertwined with the right to claim for a tax refund. Sec. 72 Chapter XI of 1997 NIRC is
not applicable where petitioner's tax refund claim assumes that the tax return that it filed were correct
because petitioner is liable under Sec. 28 (A)(1), the correctness is now put in doubt and refund
cannot be granted. It cannot be assumed that the liabilities for two different provisions would be the
same. There is a necessity for the CTA to receive evidence and establish the correct amount before
a refund can be granted.

COMMISSIONER OF INTERNAL REVENUE vs. MIRANT (PHILIPPINES) OPERATIONS,

CORPORATION- Tax Credit and Tax Refund

FACTS: Mirant filed its final adjusted Annual Income Tax Return for fiscal year ending 1999 declaring
a net loss. It then amended the said return this time reflecting an increased net loss and showing that
it opted to carry over as tax credit its overpayment to the succeeding taxable year. This excess tax
credit was unutilized in 2000 as Mirant still reported a net loss. Mirant then filed a claim for refund of
its excess creditable income tax for 1999.

ISSUE: Can Mirant claim for refund its excess credits from 1999?

HELD: NO. Mirants choice to carry over its 1999 excess income tax credit to succeeding taxable
years is irrevocable, regardless of whether it was able to actually apply the said amount to a tax
liability. It is a mistake to understand the phrase "for that taxable period" as a prescriptive period for
the irrevocability rule i.e., that since the tax credit in this case was acquired in 1999, and
Respondent opted to carry it over to 2000, then the irrevocability of the option to carry over expired by
the end of 2000, leaving Respondent free to again take another option as regards its 1999 excess
income tax credit. The Court ruled that this interpretation effectively renders nugatory the
irrevocability rule.